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EXHIBIT 2.1
[FEDERAL MOGUL LOGO]
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RECOMMENDED CASH OFFER
FOR
T&N PLC
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[T&N LOGO]
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN
ANY DOUBT ABOUT THE ACTION YOU SHOULD TAKE, YOU ARE RECOMMENDED TO SEEK YOUR OWN
FINANCIAL ADVICE FROM YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR
OTHER PROFESSIONAL ADVISER AUTHORISED UNDER THE FINANCIAL SERVICES ACT 1986.
If you have sold or otherwise transferred all of your T&N Ordinary Shares, you
should send this document, together with the accompanying Form of Acceptance and
reply-paid envelope, at once to the purchaser or transferee, or to the
stockbroker, bank or other agent through or to whom the sale or transfer was
effected, for transmission to the purchaser or transferee. HOWEVER, SUCH
DOCUMENTS SHOULD NOT BE FORWARDED OR TRANSMITTED IN OR INTO CANADA.
The Offer referred to in this document is not being made, directly or
indirectly, in or into Canada and neither this document nor the accompanying
Form of Acceptance is being mailed or otherwise distributed or sent in or into
Canada.
Any person (including nominees, trustees and custodians) who would, or otherwise
intends to, forward this document or the Form of Acceptance to any jurisdiction
outside the United Kingdom should read the further details in this regard which
are set out in paragraph 6 of Part B and paragraph (b) of Part C of Appendix I
to this document before taking any action.
This document should be read in conjunction with the accompanying Form of
Acceptance.
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RECOMMENDED CASH OFFER
BY
MORGAN STANLEY & CO. LIMITED
ON BEHALF OF
FEDERAL-MOGUL GLOBAL GROWTH LIMITED
A WHOLLY-OWNED INDIRECT SUBSIDIARY OF
FEDERAL-MOGUL CORPORATION
TO ACQUIRE THE WHOLE OF THE ISSUED ORDINARY SHARE CAPITAL
OF
T&N PLC
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A letter of recommendation from Sir Colin Hope, the Chairman of T&N, appears on
pages 5 to 7.
ACCEPTANCES SHOULD BE DESPATCHED AS SOON AS POSSIBLE, BUT IN ANY EVENT SO AS TO
BE RECEIVED BY THE RECEIVING AGENT NO LATER THAN 3:00 P.M. (LONDON TIME) ON 12
DECEMBER 1997. THE PROCEDURE FOR ACCEPTANCE IS SET OUT ON PAGES 14 TO 18 OF THIS
DOCUMENT AND IN THE ACCOMPANYING FORM OF ACCEPTANCE.
Morgan Stanley, which is regulated by The Securities and Futures Authority
Limited, is acting for Federal-Mogul and the Offeror and no one else in
connection with the Offer and will not be responsible to anyone other than
Federal-Mogul and the Offeror for providing the protections afforded to
customers of Morgan Stanley or for providing advice in relation to the Offer.
Rothschilds, which is regulated by The Securities and Futures Authority Limited,
is acting for T&N and no one else in connection with the Offer and will not be
responsible to anyone other than T&N for providing the protections afforded to
customers of Rothschilds or for providing advice in relation to the Offer.
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CONTENTS
DEFINITIONS 3
LETTER FROM THE CHAIRMAN OF T&N 5
LETTER FROM MORGAN STANLEY 8
APPENDIX I TERMS AND CONDITIONS OF THE OFFER 20
Part A: Conditions of the Offer 20
Part B: Further terms of the Offer 25
Part C: Form of Acceptance 31
APPENDIX II FINANCIAL INFORMATION ON FEDERAL-MOGUL 34
APPENDIX III FINANCIAL INFORMATION ON T&N 60
APPENDIX IV ADDITIONAL INFORMATION 91
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DEFINITIONS
The following definitions apply throughout this document, unless the context
requires otherwise:
"Canada" Canada, its provinces and territories and all areas subject
to its jurisdiction or any political subdivision thereof
"certificated" or in "certificated a share or other security which is not in uncertificated
form" form
"City Code" the City Code on Takeovers and Mergers
"CREST" the relevant system (as defined in the Regulations) in
respect of which CRESTCo is the Operator (as defined in the
Regulations)
"CRESTCo" CRESTCo Limited
"CREST member" a person who has been admitted by CRESTCo as a system-member
(as defined in the Regulations)
"CREST participant" a person who is, in relation to CREST, a system-participant
(as defined in the Regulations)
"CREST sponsor" a CREST participant admitted to CREST as a CREST sponsor
"CREST sponsored member" a CREST member admitted to CREST as a sponsored member
"Economic Value Added" a measure that takes a company's after-tax operating profit
and compares it with its cost of capital, which includes its
cost of debt and cost of equity; positive economic value
added represents the amount by which after-tax operating
profit exceeds the cost of capital
"Escrow Agent" The Royal Bank of Scotland plc in its capacity as a CREST
participant under ID 3RA32
"Federal-Mogul" Federal-Mogul Corporation
"Federal-Mogul Group" Federal-Mogul and its subsidiary undertakings
"Form of Acceptance" or "Form" the form of acceptance and authority accompanying this
document
"GAAP" Generally Accepted Accounting Principles
"London Stock Exchange" London Stock Exchange Limited
"member account ID" the identification code or number attached to any member
account in CREST
"Morgan Stanley" Morgan Stanley & Co. Limited
"Offer" the recommended offer made by Morgan Stanley, on behalf of
the Offeror, to acquire all the T&N Ordinary Shares on the
terms and subject to the conditions set out in this document
including, where the context so requires, any subsequent
revision, variation, extension or renewal of such offer
"Offeror" Federal-Mogul Global Growth Limited, a wholly-owned indirect
subsidiary of Federal-Mogul
"Official List" the Daily Official List of the London Stock Exchange
"Panel" the Panel on Takeovers and Mergers
"participant ID" the identification code or membership number used in CREST
to identify a particular CREST member or other CREST
participant
"Receiving Agent" The Royal Bank of Scotland plc, Registrars Department, New
Issues Section, which has been engaged by Federal-Mogul to
receive Forms of Acceptance from T&N Shareholders
"Regulations" the Uncertificated Securities Regulations 1995 (SI 1995 No.
95/3272)
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"Rothschilds" N M Rothschild & Sons Limited
"Securities Act" United States Securities Act of 1933 (as amended)
"T&N" T&N plc
"T&N Dividend" the third interim dividend which the directors of T&N have
declared in respect of the year ending 31 December 1997
"T&N Group" T&N and its subsidiary undertakings
"T&N Ordinary Shares" (1) the existing unconditionally allotted or issued and
fully paid ordinary shares of 40 pence each in T&N, (2) any
further such shares which may be issued or unconditionally
allotted while the Offer remains open for acceptance or,
subject to the provisions of the City Code, such earlier
date as Federal-Mogul may decide and (3) shares issued or
unconditionally allotted pursuant to the exercise of any
options under the T&N Share Option Schemes
"T&N Ordinary Share Capital" the T&N Ordinary Shares in issue on 13 November 1997 and
assuming the exercise of all outstanding options under the
T&N Share Option Schemes and the issue on 14 November 1997
of 9,711,876 T&N Ordinary Shares pursuant to the scrip
alternative to the second interim dividend
"T&N Shareholders" holders of T&N Ordinary Shares
"T&N Share Option Schemes" the T&N UK Share Option Scheme, the T&N Overseas Share
Option Scheme, the T&N 1995 Executive Share Option Scheme
and the T&N UK Savings-Related Share Option Scheme
"TFE instruction" a Transfer from Escrow instruction (as defined by the CREST
manual issued by CRESTCo)
"TTE instruction" a Transfer to Escrow instruction (as defined by the CREST
manual issued by CRESTCo)
"UK" or "United Kingdom" the United Kingdom of Great Britain and Northern Ireland
"uncertificated" or in a share or other security which is for the time being
"uncertificated form" recorded on the relevant register of the share or security
concerned as being held in uncertificated form in CREST, and
title to which, by virtue of the Regulations, may be
transferred by means of CREST
"United States" or "US" the United States of America, its territories and
possessions, any state of the United States of America and
the District of Columbia
"Wider Federal-Mogul Group" Federal-Mogul and the subsidiaries and subsidiary
undertakings of Federal-Mogul and associated undertakings
(including any joint venture, partnership, firm or company
in which any member of the Federal-Mogul Group is interested
or any undertaking in which Federal-Mogul and such
undertakings (aggregating their interests) have a material
interest)
"Wider T&N Group" T&N and the subsidiaries and subsidiary undertakings of T&N
and associated undertakings (including any joint venture,
partnership, firm or company in which any member of the T&N
Group is interested or any undertaking in which T&N and such
undertakings (aggregating their interests) have a material
interest).
For the purposes of this document, "subsidiary" and "subsidiary undertaking"
have the respective meanings given by the Companies Act 1985.
Terms defined in the CREST manual shall, unless the context otherwise requires,
bear the same meanings where used herein.
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[T&N PLC Logo]
Registered No.163992 (England & Wales)
Registered Office:
Manchester International Office Centre
Styal Road
Manchester
M22 5TN
13 November 1997
To T&N Shareholders and, for information only, to participants in the T&N Share
Option Schemes
Dear Shareholder,
RECOMMENDED CASH OFFER
On 26 September 1997 the board of T&N announced that it had received an approach
from Federal-Mogul. Following a series of discussions between T&N and
Federal-Mogul, it was announced on 16 October 1997 that the boards of T&N and
Federal-Mogul had reached agreement on the terms of a recommended cash offer for
T&N.
I am now writing to you to explain why your directors consider the terms of the
Offer to be fair and reasonable and are unanimously recommending you to accept
the Offer, as they have undertaken to do in respect of their own beneficial
shareholdings, together with the T&N Ordinary Shares to be issued pursuant to
the second interim dividend.
The formal Offer is set out in the letter from Morgan Stanley on pages 8 to 19
of this document.
THE RECOMMENDED CASH OFFER
The Offer is 260 pence in cash for each T&N Ordinary Share and values the T&N
Share Capital at approximately Pound 1.5 billion. The Offer is subject
to a number of conditions, including regulatory consents and confirmations
being obtained, both in the US and in a number of European countries. As
explained in the letter from Morgan Stanley, the parties are confident that, in
the absence of unforeseen regulatory requirements, the Offer will not lapse for
lack of regulatory consents or confirmations.
T&N Shareholders on the register on 12 December 1997 will also be entitled to
receive the T&N Dividend of 3 pence (net) per T&N Ordinary Share, declared on 6
November 1997, details of which are set out below.
BACKGROUND TO AND REASONS FOR RECOMMENDING THE OFFER
Over the years, T&N has developed to become one of the world's leading
suppliers of high technology automotive components, engineered products and
industrial materials, with annual turnover of almost Pound 2 billion and over
28,000 employees worldwide.
With the increasing international dimension of our business and trends towards
consolidation to meet the demands of customers, your company has considered how
to grow to meet the challenges presented. In this context, the combination of
Federal-Mogul and T&N has considerable industrial and market logic. In
particular, the combined industry expertise of the
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two companies creates an opportunity which will provide ongoing benefits in
terms of high quality service to both original equipment and aftermarket
customers.
Against this background, your board is particularly conscious of the need to
deliver shareholder value. Despite securing a Pound 500 million layer
of insurance cover in respect of potential asbestos liability claims in 1996,
your company has continued to underperform in the stock market. Bearing this
stock market performance in mind, your board unanimously believes that the
Offer is at a level which can be recommended to shareholders.
In particular, your board is recommending the Offer on the basis that:
- the Offer represents premia of 65.1 per cent and 73.6 per cent to T&N's
average share price in the one month and three months, respectively, prior
to 25 September 1997, the last dealing day prior to the announcement that
T&N had received an approach from Federal-Mogul,
- the Offer represents a premium of 42.9 per cent to T&N's share price at
the close of business on 25 September 1997,
- the Offer represents an exit price earnings multiple of 17.6 times, based
on the published earnings per T&N ordinary share (before asbestos-related
costs) of 14.8 pence for the financial year ended 31 December 1996.
Your attention is drawn to the tables set out in paragraph 6 of the letter from
Morgan Stanley showing the financial effects of acceptance of the Offer.
BOARD, MANAGEMENT AND EMPLOYEES
Federal-Mogul has stated that it attaches great importance to the skills and
experience of the existing management and employees and that it believes that as
a result of the acquisition there will be greater opportunities within the
Federal-Mogul Group.
Federal-Mogul has also given assurances to the board of T&N that the existing
rights of employees, including pension rights, will be fully safeguarded.
Details regarding the arrangements entered into with the executive directors of
T&N in the event that their contracts of employment are terminated following the
Offer becoming unconditional in all respects are set out in paragraph 6 of
Appendix IV to this document.
I have agreed to become an international adviser to Federal-Mogul for up to two
years from the completion of the acquisition. In addition, two non-executive
directors of T&N, Paul Lewis and Sir Geoffrey Whalen, have been invited to join
the board of Federal-Mogul.
I should like to take this opportunity to thank all of our staff for their
contribution to T&N's success over the years.
IRREVOCABLE UNDERTAKINGS
The directors of T&N have given irrevocable undertakings to accept the Offer in
respect of their own beneficial shareholdings, together with the T&N Ordinary
Shares to be issued pursuant to the second interim dividend, amounting to
201,232 T&N Ordinary Shares, representing approximately 0.03 per cent. of the
T&N Ordinary Share Capital. The irrevocable undertakings cease to be binding
only in the event that the Offer lapses or is withdrawn.
THE T&N DIVIDEND
On 6 November 1997, the directors of T&N declared a third interim dividend of 3
pence (net) per T&N Ordinary Share in respect of the year ending 31 December
1997. The T&N Dividend will be paid (whether or not the Offer becomes
unconditional in all respects) on 30 January 1998 to T&N Shareholders on the
register at the close of business on 12 December 1997 and may be
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retained by all such T&N Shareholders. The ex-entitlement date for the T&N
Dividend will be 8 December 1997. There will be no scrip alternative.
T&N SHARE OPTION SCHEMES
The Offer extends to any T&N Ordinary Shares which are unconditionally allotted
or issued before the date on which the Offer closes, whether as a result of the
exercise of options under the T&N Share Option Schemes or otherwise.
Once the Offer becomes or is declared wholly unconditional in all respects,
appropriate proposals will be made to the holders of options under the T&N Share
Option Schemes which remain unexercised.
The attention of participants in the T&N UK Share Option Scheme and the T&N 1995
Executive Share Option Scheme is drawn to the letter addressed to holders of
options under such schemes and the attention of participants in the T&N UK
Savings-Related Share Option Scheme is drawn to the letter addressed to holders
of options under this scheme.
ACTION TO BE TAKEN TO ACCEPT THE OFFER
The detailed procedure for acceptance is set out in paragraph 10 of the letter
from Morgan Stanley and in the Form of Acceptance.
TO ACCEPT THE OFFER YOU SHOULD RETURN YOUR COMPLETED FORM OF ACCEPTANCE, WHETHER
OR NOT YOUR T&N ORDINARY SHARES ARE IN CREST, IN ACCORDANCE WITH THESE
INSTRUCTIONS AS SOON AS POSSIBLE TO THE RECEIVING AGENT AND, IN ANY EVENT, SO AS
TO BE RECEIVED NO LATER THAN 3:00 P.M. (LONDON TIME) ON 12 DECEMBER 1997. A
REPLY-PAID ENVELOPE, FOR USE IN THE UK ONLY, IS ENCLOSED FOR YOUR CONVENIENCE.
IF YOU REQUIRE FURTHER ASSISTANCE ON HOW TO COMPLETE THE FORM OF ACCEPTANCE,
PLEASE CALL THE ROYAL BANK OF SCOTLAND, REGISTRARS DEPARTMENT, THE RECEIVING
AGENT TO THE OFFER, ON 0117 937 0672. PLEASE NOTE THAT THE RECEIVING AGENT WILL
BE UNABLE TO ADVISE YOU WHETHER OR NOT TO ACCEPT THE OFFER.
RECOMMENDATION
THE BOARD OF T&N, WHICH HAS BEEN SO ADVISED BY ROTHSCHILDS, CONSIDERS THE TERMS
OF THE OFFER TO BE FAIR AND REASONABLE. IN PROVIDING ADVICE TO THE BOARD OF T&N,
ROTHSCHILDS HAS TAKEN INTO ACCOUNT THE COMMERCIAL ASSESSMENTS OF THE DIRECTORS
OF T&N. ACCORDINGLY, THE DIRECTORS OF T&N UNANIMOUSLY RECOMMEND T&N SHAREHOLDERS
TO ACCEPT THE OFFER, AS THEY HAVE UNDERTAKEN TO DO IN RESPECT OF THEIR OWN
BENEFICIAL SHAREHOLDINGS, TOGETHER WITH THE T&N ORDINARY SHARES TO BE ISSUED
PURSUANT TO THE SECOND INTERIM DIVIDEND, AMOUNTING IN AGGREGATE TO 201,232 T&N
ORDINARY SHARES.
YOURS FAITHFULLY
Colin L.N. Hope
SIR COLIN HOPE
CHAIRMAN
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MORGAN STANLEY
MORGAN STANLEY & CO. LIMITED
REGISTERED OFFICE:
25 CABOT SQUARE
CANARY WHARF
LONDON E14 4QA
REGISTERED IN ENGLAND, NO. 2164628
REGULATED BY THE SECURITIES AND
FUTURES AUTHORITY LIMITED
13 November 1997
To T&N Shareholders and, for information only, to participants in the T&N Share
Option Schemes
Dear Shareholder,
RECOMMENDED CASH OFFER FOR T&N
ON BEHALF OF FEDERAL-MOGUL GLOBAL GROWTH LIMITED
1. INTRODUCTION
On 16 October 1997 the boards of T&N and Federal-Mogul announced a recommended
cash offer to be made by Morgan Stanley on behalf of Federal-Mogul Global Growth
Limited, a wholly-owned indirect subsidiary of Federal-Mogul, to acquire the
whole of the issued ordinary share capital of T&N. This letter constitutes the
formal Offer for your T&N Ordinary Shares and should be read in conjunction with
the Form of Acceptance.
The Offer values each T&N Ordinary Share at 260 pence and the T&N Ordinary Share
Capital at approximately Pound 1.5 billion.
YOUR ATTENTION IS DRAWN TO THE LETTER FROM SIR COLIN HOPE, CHAIRMAN OF T&N, ON
PAGES 5 TO 7 OF THIS DOCUMENT, WHICH SETS OUT THE REASONS WHY THE T&N BOARD OF
DIRECTORS, WHO HAVE BEEN SO ADVISED BY ROTHSCHILDS, CONSIDER THE TERMS OF THE
OFFER TO BE FAIR AND REASONABLE. THEY ARE UNANIMOUSLY RECOMMENDING YOU TO ACCEPT
THE OFFER, AS THEY HAVE UNDERTAKEN TO DO IN RESPECT OF THEIR OWN BENEFICIAL
SHAREHOLDINGS, TOGETHER WITH THE T&N ORDINARY SHARES TO BE ISSUED PURSUANT TO
THE SECOND INTERIM DIVIDEND.
Irrevocable undertakings to accept the Offer have been received by Federal-Mogul
from the directors of T&N in respect of an aggregate of 201,232 T&N Ordinary
Shares (representing approximately 0.03 per cent. in aggregate, of the T&N
Ordinary Share Capital). These irrevocable undertakings cease to be binding only
in the event that the Offer lapses or is withdrawn.
2. THE OFFER
On behalf of the Offeror, Morgan Stanley hereby offers to acquire, on the terms
and subject to the conditions set out or referred to in this document and in the
Form of Acceptance, all of the T&N Ordinary Shares on the following basis:
FOR EACH T&N ORDINARY SHARE 260 PENCE IN CASH
The Offer represents a premium of 42.9 per cent. to T&N's share price at the
close of business on 25 September 1997, the last dealing day prior to the
announcement that T&N had received an
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approach from Federal-Mogul. The Offer represents premia of 65.1 per cent.
and 73.6 per cent. to T&N's average share price in the one month and
three months, respectively, prior to 25 September 1997.
TO ACCEPT THE OFFER YOU SHOULD COMPLETE AND RETURN THE FORM OF ACCEPTANCE,
WHETHER OR NOT YOUR T&N ORDINARY SHARES ARE IN CREST, AS SOON AS POSSIBLE TO THE
RECEIVING AGENT AND, IN ANY EVENT, SO AS TO BE RECEIVED NO LATER THAN 3:00 P.M.
(LONDON TIME) ON 12 DECEMBER 1997. THE PROCEDURE FOR ACCEPTANCE IS SET OUT IN
SECTION 10 OF THIS LETTER AND IN THE FORM OF ACCEPTANCE.
T&N Ordinary Shares will be acquired by the Offeror fully paid and free from all
liens, equities, charges, encumbrances and other interests of any nature
whatsoever and together with all rights now or hereafter attaching thereto,
including the right to receive and retain all dividends and other distributions
declared, made or paid after 16 October 1997, other than the right to receive
and retain the second interim dividend of 3.2 pence (net) per T&N Ordinary Share
payable on 14 November 1997, or the scrip alternative to such dividend, and the
T&N Dividend of 3 pence (net) per T&N Ordinary Share.
The Offer will extend to any T&N Ordinary Shares which are unconditionally
allotted or issued before the date on which the Offer closes (or such earlier
date, not being earlier than the date on which the Offer becomes unconditional
as to acceptances or, if later, 12 December 1997, as Federal-Mogul may, subject
to the City Code, decide) as a result of the exercise of options under the T&N
Share Option Schemes or otherwise.
Your attention is drawn to the conditions and further terms of the Offer set out
in Appendix I to this document.
3. INFORMATION RELATING TO FEDERAL-MOGUL
Federal-Mogul manufactures and distributes worldwide a broad range of precision
parts, primarily vehicular components for automobiles and light trucks, heavy
duty trucks, farm and construction vehicles and industrial products. The company
manufactures sealing systems, fuel systems, engine bearings, lighting products,
pistons and chassis products. The company engineers and manufactures products
for original equipment manufacturers, principally the major automotive
manufacturers in the United States and Europe, and also provides these and
related products to aftermarket customers. Federal-Mogul has a worldwide network
of distribution points to service its aftermarket customers. The group has 90
manufacturing locations in 16 countries and employs approximately 15,700 people
worldwide.
For the twelve months to 30 June 1997, Federal-Mogul's results under US GAAP
comprised consolidated net income before exceptional items of US$52.6
million (Pound 32.9 million) on net revenues of US$1,939 million (Pound 1,212
million). As at 30 June 1997, Federal-Mogul had net assets of US$335 million
(Pound 209 million) and net borrowings of US$327 million (Pound 204 million).
Federal-Mogul's common stock is traded on the New York Stock Exchange, with a
current equity market capitalisation of US$1,781 million (Pound 1,113 million).
Further financial information relating to Federal-Mogul, including financial
information for the nine months ended 30 September 1997, is set out in Appendix
II to this document.
The Offeror is a UK company, wholly-owned indirectly by Federal-Mogul, which has
been incorporated to make the Offer on behalf of Federal-Mogul. Further
information relating to the Offeror is set out in paragraph 2(d) of Appendix IV
to this document.
4. INFORMATION RELATING TO T&N
T&N is a major supplier of high technology automotive components, engineered
products and industrial materials, with about 80 per cent. of its sales relating
to the world automotive industry. The group is strategically focused on the
transportation, marine and power generation markets.
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T&N is structured into six global product groups: Piston Products, Bearings,
Friction Products, Composites and Camshafts (incorporating Powder Metal
Products), Sealing Products and Engine Parts Aftermarket. T&N is also a leading
regional producer of Heat Transfer Products in South Africa for domestic and
export markets. T&N operates in around 200 locations in 24 countries, employs
over 28,000 people worldwide and serves customers in more than 150 countries. It
also has technical centres in the UK and Germany and a North American facility
which opened in 1997.
For the twelve months to 30 June 1997, T&N's results under UK GAAP
comprised consolidated net income before exceptional items of Pound 94.7
million (US$151.5 million) on net revenues of Pound 1,837 million (US$2,939
million). As at 30 June 1997, T&N had net assets of Pound 142 million (US$228
million) and net borrowings of Pound 256 million (US$410 million).
Further financial information relating to T&N is set out in Appendix III to this
document.
5. BACKGROUND TO AND STRATEGIC RATIONALE FOR THE OFFER
In his address to shareholders, customers and employees in Federal-Mogul's 1996
annual report, Chairman and Chief Executive Officer, Dick Snell, stated that the
company was moving forward in a new direction, focusing on profitable growth
with an emphasis on enhancing systems and modules capabilities and expanding
internationally in both the original equipment manufacturers and aftermarket
segments. This objective was to be achieved through a combination of organic
growth and an aggressive acquisition strategy. The acquisition of T&N represents
a significant step in meeting the second part of this objective.
Although no agreements have been entered into with respect to material
acquisitions other than the Offer, Federal-Mogul is currently exploring
acquisitions of several companies that could result in substantial transactions
for Federal-Mogul.
The acquisition of T&N will create a highly competitive Tier I automotive
systems supplier worldwide.
The combined companies would have had combined revenues for 1996 of US$5,160
million, over 43,700 employees, extensive operations in North America, Europe
and the rest of the world and a broad customer base.
Federal-Mogul's management believes that, as a result of combining complementary
products on a worldwide basis, Federal-Mogul will have the scale, reach,
financial strength and technological capabilities to achieve strong growth and
to participate in the consolidation of the automotive sector worldwide.
Given the expected synergies and increased market opportunities created through
this combination, Federal-Mogul's management believes the acquisition will be
beneficial to shareholders, customers and employees.
- - PRODUCTS
The combined product range will position Federal-Mogul as a strong worldwide
supplier of engine and transmission parts with highly competitive market
positions in sealing products, engine bearings, piston rings and pistons.
Federal-Mogul believes that the acquisition will:
- - enhance systems capability through the ability to offer customers engine and
transmission parts;
- - provide Federal-Mogul with full piston systems capabilities;
- - enhance Federal-Mogul's sealing systems capabilities by complementing its oil
seals business with T&N's strong European position in gaskets; and
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- - allow Federal-Mogul to gain entry into valvetrain systems through T&N's
camshaft and powdered metal business.
Based on combined historical 1996 revenues, Federal-Mogul's revenues for engine
systems and for sealing systems would have been US$2,950 million and US$720
million respectively (representing increases of 243% and 140% respectively, over
Federal-Mogul's standalone figures for that year). On the same basis,
Federal-Mogul's friction products would have had revenues of US$525 million.
- - GEOGRAPHIC PROFILE
Federal-Mogul's reach will be enhanced by the complementary geographic profile
of T&N. Prior to the acquisition, 60% of Federal-Mogul's revenues were generated
in North America, 22% in Europe and 18% in the rest of the world. The geographic
profile of the two companies combined, based on historical 1996 revenues, would
have been 42% North America, 44% Europe and 14% rest of the world. In addition,
Federal-Mogul will gain access to many new markets.
- - CUSTOMERS
The acquisition will enable Federal-Mogul to bring systems solutions to original
equipment manufacturers for a broad range of hard engine products and to meet
their increasing demands for continuous product and cost improvement.
The acquisition strengthens Federal-Mogul's position as an aftermarket supplier
by combining Federal-Mogul's leading position in the North American engine parts
aftermarket with T&N's attractive position in this sector, where it is present
in Europe, North America, Mexico, South America, South Africa and South East
Asia.
- - RESEARCH AND DEVELOPMENT
The acquisition will enhance Federal-Mogul's material development and research
and development capabilities and will position the company as a significant
force in patented technology products and processes
- - FINANCIAL BENEFITS
Federal-Mogul expects significant synergies and operating efficiencies to be
achieved from the integration of the two businesses. Major synergies are
expected to arise from consolidating the aftermarket operations in North America
and Europe and from improved efficiencies in working practices. Other synergies
are expected in the areas of purchasing, production, research and development,
working capital efficiencies and in the form of reduced capital expenditures.
Based on the information currently available to it, Federal-Mogul is
anticipating annual pre-tax synergies to reach in excess of US$100 million
starting from the second full year following the acquisition.
Achieving these benefits will require a once-off restructuring charge in the
first year following the acquisition of an amount approximately equal to the
annual level of synergy benefits achieved in the second year. This charge will
be of an amount at least equal to any synergy benefits achieved in the first
year following the acquisition.
Federal-Mogul expects that the acquisition will be modestly accretive to
earnings per share in 1998 and more accretive to earnings per share in 1999.
This statement should not be interpreted to mean that the future earnings per
share of Federal-Mogul will necessarily be greater than the earnings per share
of Federal-Mogul for the financial year ended 31 December 1996.
Federal-Mogul also expects that the acquisition will provide positive Economic
Value Added and have a positive cash flow impact.
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Federal-Mogul intends to maintain T&N's Pound 500 million insurance
policy in respect of asbestos. In addition, Federal-Mogul will book an
incremental Pound 367 million asbestos provision. No charge to future earnings
is anticipated for asbestos.
- - COMPETITION REGULATION
The Offer is subject to regulatory consents and confirmations being obtained,
both in the US and in a number of European countries. Federal-Mogul and T&N are
committed to working together to obtain the regulatory approvals within the
normal City Code timetable. Federal-Mogul has agreed with T&N that divestitures
of at least some thin wall bearings assets may be required. Federal-Mogul is
confident that any such divestitures will not materially affect the underlying
strategic rationale for the acquisition. The parties hope that it will not be
necessary to extend the normal City Code timetable, but Federal-Mogul has agreed
to apply for extensions from the Panel if necessary. The parties are confident
that, in the absence of unforeseen regulatory requirements, the Offer will not
lapse for lack of regulatory consents or confirmations.
Federal-Mogul and T&N agree that the acquisition should assist the combined
entity to compete in the intensely competitive automotive components industry.
In order to re-inforce Federal-Mogul's commitment in relation to the obtaining
of relevant regulatory approvals, Federal-Mogul has agreed, in the event that
the Offer were to lapse as a result solely of Federal-Mogul invoking any of
conditions (b) to (d) inclusive as set out in Part A of Appendix I to this
document, at the option of T&N to either subscribe Pound 50 million for ordinary
shares in T&N worth Pound 40 million or to pay Pound 10 million in cash to T&N.
- - FINANCING
The cash required by Federal-Mogul to satisfy the consideration payable to T&N
shareholders under the Offer will be provided from a bank facility, including
long term components and bridge components, under two credit agreements between
Federal-Mogul, The Chase Manhattan Bank and Chase Securities, Inc.
It is Federal-Mogul's intention to put in place a permanent capital structure
that reflects its financial goals. To this end, Federal-Mogul intends in due
course to refinance the funds provided from the bridge components of this
facility with an appropriate combination of equity and debt financing.
Federal-Mogul is commencing a placement of a convertible preferred security, to
be issued through a financing trust in the United States to "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act) and to
certain non-US persons in compliance with Regulation S under the Securities Act.
It is anticipated that the proceeds of such placement, if such placement is
completed, will be used to reduce the amount of the senior bank debt utilised to
finance the Offer. The financing of the Offer is in no way contingent on the
completion of such placement.
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6. FINANCIAL EFFECTS OF ACCEPTANCE
The following tables set out, for illustrative purposes only and on the bases
and assumptions set out below, the financial effects of acceptance on capital
value and gross income for a holder of one T&N Ordinary Share accepting the
Offer if the Offer becomes or is declared unconditional in all respects:
A. INCREASE IN CAPITAL VALUE NOTES PENCE
Cash consideration 260
Market value of one T&N Ordinary Share (i) 182
--------
Increase in capital value 78
--------
This represents an increase of 42.9%
B. INCREASE IN GROSS INCOME
Gross income from cash consideration (ii) 17.4
Gross dividend income from one T&N Ordinary Share (iii) 7.5
--------
Increase in gross income 9.9
--------
This represents an increase of 132%
Notes:
(i) Based on the closing middle-market quotation of 182 pence per T&N
Ordinary Share, as derived from the London Stock Exchange Daily
Official List, on 25 September 1997, the last dealing day prior to the
announcement that T&N had received an approach from Federal-Mogul.10
(ii) The gross income from the cash consideration has been calculated on the
assumption that the cash is reinvested to yield 6.58 per cent. per
annum, being the gross yield shown by the FTSE Actuaries average gross
redemption yield for medium coupon British Government securities of
maturities of five to fifteen years on 10 November 1997 as published in
the Financial Times on 11 November 1997, the latest practicable date
prior to the posting of this document.
(iii) The gross dividend income from T&N Ordinary Shares is based on
aggregate dividends of 6.0 pence (net) per T&N Ordinary Share being the
total of the 3.0 pence (net) interim dividend for the six months ended
30 June 1996 and the 3.0 pence (net) special first interim dividend, in
lieu of the final dividend for the financial year ended 31 December
1996, paid on 11 July 1997, together with an associated tax credit of
20/80ths of the amount paid. As a result of provisions contained in the
Finance (No. 2) Act 1997, pension funds cannot claim repayment of tax
credits on dividends paid on or after 2 July 1997.
(iv) In assessing the financial effects of acceptance, no account has been
taken of the T&N Dividend and save as disclosed in note (iii) above, no
account has been taken of any liability to taxation.
7. BOARD, MANAGEMENT AND EMPLOYEES
Federal-Mogul attaches great importance to the skills and experience of the
existing management and employees of T&N and believes that as a result of the
acquisition there will be greater opportunities within the Federal-Mogul Group.
Federal-Mogul has given assurances to the directors of T&N that the existing
rights of employees of T&N, including pension rights, will be fully safeguarded.
If the Offer becomes wholly unconditional Sir Colin Hope and Ian Much will
resign as directors and employees of T&N. Sir Colin will become an international
adviser to Federal-Mogul for up to two years. In addition, two non-executive
directors of T&N, Paul Lewis and Sir Geoffrey Whalen, have been invited to join
the board of Federal-Mogul.
Arrangements are also in place in relation to David Harding, Allan Welsh and
Alister McWilliam, details of which are set out in Appendix IV to this document.
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8. T&N SHARE OPTION SCHEMES
The Offeror will make appropriate proposals to holders of options under the T&N
Share Option Schemes, to the extent that options are not exercised, once the
Offer becomes or is declared unconditional in all respects. The attention of
participants in the T&N UK Share Option Scheme and the T&N 1995 Executive Share
Option Scheme is drawn to the letter addressed to holders of options under such
schemes and the attention of participants in the T&N UK Savings-Related Share
Option Scheme is drawn to the letter addressed to holders of options under this
scheme.
9. UNITED KINGDOM TAXATION
The following paragraphs, which are intended as a general guide only, are based
on current legislation and Inland Revenue practice. They summarise certain
limited aspects of the UK taxation treatment of the acceptance of the Offer, and
they relate only to the position of T&N Shareholders who hold their T&N Ordinary
Shares beneficially as an investment and who are resident in the UK for taxation
purposes. If you are in any doubt as to your taxation position or if you are
subject to taxation in any jurisdiction other than the UK, you should consult an
appropriate professional adviser immediately.
(A) UK TAXATION ON CHARGEABLE GAINS
Acceptance of the Offer by a T&N Shareholder will constitute a disposal, or
part disposal, of his/her T&N Ordinary Shares for the purposes of UK
taxation on chargeable gains which may, depending on the shareholder's
individual circumstances (including the availability of exemptions and
allowable losses), give rise to a liability to UK taxation on chargeable
gains.
(B) OTHER DIRECT TAX MATTERS
Special tax provisions may apply to T&N Shareholders who have acquired or
acquire their T&N Shares by exercising options under the T&N Share Option
Schemes including provisions imposing a charge to income tax when such an
option is exercised.
(C) STAMP DUTY AND STAMP DUTY RESERVE TAX ("SDRT")
No stamp duty or SDRT will be payable by T&N Shareholders as a result of
accepting the Offer.
10. PROCEDURE FOR ACCEPTANCE
This section should be read in conjunction with the notes on the Form of
Acceptance.
(A) COMPLETION OF FORM OF ACCEPTANCE
If you hold T&N Ordinary Shares in both certificated and uncertificated form
you should complete a separate Form of Acceptance for each holding. In
addition, you should complete a separate Form of Acceptance for T&N Ordinary
Shares held in uncertificated form, but under different member account IDs,
and for T&N Ordinary Shares held in certificated form but under different
designations. ADDITIONAL FORMS OF ACCEPTANCE ARE AVAILABLE FROM THE
RECEIVING AGENT (TELEPHONE NUMBER 0117 937 0672).
(i) To Accept The Offer
To accept the Offer in respect of all your T&N Ordinary Shares, you must
complete Boxes 1 and 3 and, if your T&N Ordinary Shares are in CREST, Box
4. In all cases you must sign Box 2 of the enclosed Form of Acceptance in
the presence of a witness, who should also sign in accordance with the
instructions printed thereon.
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(ii) To accept the offer in respect of less than all your T&N Ordinary
Shares
To accept the Offer in respect of less than all your T&N Ordinary Shares,
you must insert in Box 1 on the enclosed Form of Acceptance such lesser
number of T&N Ordinary Shares in respect of which you wish to accept the
Offer in accordance with the instructions printed thereon. You should
then follow the procedure set out in (i) above in respect of such lesser
number of T&N Ordinary Shares. If you do not insert a number, or you
insert a number greater than your entire holding of T&N Ordinary Shares
in Box 1, your acceptance will be deemed to be in respect of all of the
T&N Ordinary Shares held by you.
IF YOU HAVE ANY QUESTIONS AS TO HOW TO COMPLETE THE FORM OF ACCEPTANCE, PLEASE
TELEPHONE THE RECEIVING AGENT ON TELEPHONE NUMBER 0117 937 0672. PLEASE NOTE
THAT THE RECEIVING AGENT WILL BE UNABLE TO ADVISE YOU WHETHER OR NOT TO ACCEPT
THE OFFER.
(B) RETURN OF FORM OF ACCEPTANCE
To accept the Offer, the completed Form of Acceptance should be returned
whether or not your T&N Ordinary Shares are in CREST. THE COMPLETED FORM OF
ACCEPTANCE SHOULD BE RETURNED BY POST, OR BY HAND, TO THE RECEIVING AGENT,
THE ROYAL BANK OF SCOTLAND PLC, REGISTRARS DEPARTMENT, NEW ISSUES SECTION,
PO BOX 859, CONSORT HOUSE, EAST STREET, BEDMINSTER, BRISTOL BS99 1XZ OR, BY
HAND ONLY DURING NORMAL BUSINESS HOURS, TO THE ROYAL BANK OF SCOTLAND PLC,
REGISTRARS DEPARTMENT, NEW ISSUES SECTION, PO BOX 633, 5-10 GREAT TOWER
STREET, LONDON EC3R 5ER TOGETHER (SUBJECT TO PARAGRAPH (D) BELOW) WITH THE
RELEVANT SHARE CERTIFICATE(S) AND/OR OTHER DOCUMENT(S) OF TITLE AS SOON AS
POSSIBLE, BUT IN ANY EVENT SO AS TO BE RECEIVED NOT LATER THAN 3:00 P.M.
(LONDON TIME) ON 12 DECEMBER 1997. A reply-paid envelope for use in the UK
only is enclosed for your convenience. No acknowledgement of receipt of
documents will be given by or on behalf of the Offeror. All documents sent
by, to or from T&N Shareholders or their appointed agents will be sent at
their own risk. The instructions printed on the Form of Acceptance shall be
deemed to form part of the terms of the Offer.
(C) DOCUMENTS OF TITLE
If your T&N Ordinary Shares are in certificated form, a completed and signed
Form of Acceptance should be accompanied by the relevant share
certificate(s) and/or other documents(s) of title. If for any reason the
relevant share certificate(s) and/or other document(s) of title is/are not
readily available or is/are lost, you should nevertheless complete, sign and
lodge the Form of Acceptance as stated above so as to be received by the
Receiving Agent not later than 3:00 p.m. (London time) on 12 December 1997.
You should send with the Form of Acceptance any share certificate(s) and/or
other document(s) of title which you may have available and a letter stating
that the remaining documents will follow as soon as possible or that you
have lost one or more of your share certificate(s) and/or other document(s)
of title. You should then arrange for the relevant share certificate(s)
and/or other document(s) of title to be forwarded as soon as possible
thereafter. No acknowledgement of receipt of documents will be given. If you
have lost your share certificate(s) and/or other document(s) of title, you
should write as soon as possible to T&N's Registrars, Lloyds Bank
Registrars, Registrars Department, 54 Pershore Road South, Kings Norton,
Birmingham B30 3EP, for a letter of indemnity for the lost share
certificate(s) and/or other document(s) of title which, when completed in
accordance with the instructions given, should be returned by post to the
Receiving Agent as above.
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(D) ADDITIONAL PROCEDURES FOR T&N ORDINARY SHARES IN UNCERTIFICATED FORM (THAT
IS, IN CREST)
If your T&N Ordinary Shares are in uncertificated form, you should insert in
Box 4 of the enclosed Form of Acceptance the participant ID and member
account ID under which such shares are held by you in CREST and otherwise
complete and return the Form of Acceptance as described above. In addition,
you should take (or procure to be taken) the action set out below to
transfer the T&N Ordinary Shares in respect of which you wish to accept the
Offer to an escrow balance (that is, a TTE instruction) specifying the
Receiving Agent (in its capacity as a CREST participant under its
participant ID referred to below) as the Escrow Agent, as soon as possible
and in any event so that the transfer to escrow settles not later than 3:00
p.m. (London time) on 12 December 1997.
If you are a CREST sponsored member, you should refer to your CREST sponsor
before taking any action. Your CREST sponsor will be able to confirm details
of your participant ID and the member account ID under which your T&N
Ordinary Shares are held. In addition, only your CREST sponsor will be able
to send the TTE instruction to CRESTCo in relation to your T&N Ordinary
Shares.
You should send (or, if you are a CREST sponsored member, procure that your
CREST sponsor sends) a TTE instruction to CRESTCo which must be properly
authenticated in accordance with CRESTCo's specifications and which must
contain, in addition to the other information that is required for a TTE
instruction to settle in CREST, the following details:
(i) Number of T&N Ordinary Shares to be transferred to an escrow
balance;
(ii) Your member account ID. This must be the same member account ID as
the member account ID that is inserted in Box 4 of the Form of
Acceptance;
(iii) Your participant ID. This must be the same participant ID as the
participant ID that is inserted in Box 4 of the Form of
Acceptance;
(iv) Participant ID of the Escrow Agent (that is, the Receiving Agent,
in its capacity as a CREST Receiving Agent). This is 3RA32;
(v) Member account ID of the Escrow Agent. This is FEDERAL;
(vi) Form of Acceptance reference number. This is the reference number
that appears on page 3 of the Form of Acceptance. This reference
number should be inserted in the first eight characters of the
shared note field on the TTE instruction. Such insertion will
enable the Receiving Agent to match the transfer to escrow to your
Form of Acceptance. You should keep a separate record of this
reference number for future reference;
(vii) Intended settlement date. This should be as soon as possible and
in any event no later than 3:00 p.m. (London time) on 12 December
1997; and
(viii) Corporate action number. This is corporate action number 3.
After settlement of the TTE instruction, you will not be able to access the
T&N Ordinary Shares concerned in CREST for any transaction or charging
purposes. If the Offer becomes or is declared unconditional in all respects,
the Escrow Agent will transfer the T&N Ordinary Shares concerned to itself
in accordance with paragraph (h) of Part C of Appendix I of this document.
You are recommended to refer to the CREST manual published by CRESTCo for
further information on the CREST procedures outlined above. For ease of
processing, you are requested, wherever possible, to ensure that a Form of
Acceptance relates to only one transfer to escrow.
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If no Form of Acceptance reference number, or an incorrect Form of
Acceptance reference number, is included on the TTE instruction, the Offeror
may treat any amount of T&N Ordinary Shares transferred to an escrow balance
in favour of the Escrow Agent specified above from the participant ID and
member account ID identified in the TTE instruction as relating to any
Form(s) of Acceptance which relate(s) to the same participant ID and member
account ID (up to the amount of T&N Ordinary Shares inserted or deemed to be
inserted in Box 1 on the Form(s) of Acceptance concerned).
YOU SHOULD NOTE THAT CRESTCO DOES NOT MAKE AVAILABLE SPECIAL PROCEDURES IN
CREST FOR ANY PARTICULAR CORPORATE ACTION. NORMAL SYSTEM TIMINGS AND
LIMITATIONS WILL THEREFORE APPLY IN CONNECTION WITH A TTE INSTRUCTION AND
ITS SETTLEMENT. YOU SHOULD THEREFORE ENSURE THAT ALL NECESSARY ACTION IS
TAKEN BY YOU (OR BY YOUR CREST SPONSOR) TO ENABLE A TTE INSTRUCTION RELATING
TO YOUR T&N ORDINARY SHARES TO SETTLE PRIOR TO 3:00 P.M. (LONDON TIME) ON 12
DECEMBER 1997. IN THIS CONNECTION, YOU ARE REFERRED IN PARTICULAR TO THOSE
SECTIONS OF THE CREST MANUAL CONCERNING PRACTICAL LIMITATIONS OF THE CREST
SYSTEM AND TIMINGS.
The Offeror will make an appropriate announcement if any of the details
contained in this paragraph 10(d) alter for any reason.
(E) DEPOSITS OF T&N ORDINARY SHARES INTO, AND WITHDRAWALS OF T&N ORDINARY SHARES
FROM, CREST
Normal CREST procedures (including timings) apply in relation to any T&N
Ordinary Shares that are, or are to be, converted from uncertificated to
certificated form, or from certificated to uncertificated form, during the
course of the Offer (whether any such conversion arises as a result of a
transfer of T&N Ordinary Shares or otherwise). Holders of T&N Ordinary
Shares who are proposing so to convert any such shares are recommended to
ensure that the conversion procedures are implemented in sufficient time to
enable the person holding or acquiring the T&N Ordinary Shares as a result
of the conversion to take all necessary steps in connection with an
acceptance of the Offer (in particular, as regards delivery of share
certificate(s) or other documents of title or transfers to an escrow balance
as described above) prior to 3:00 p.m. (London time) on 12 December 1997.
(F) VALIDITY OF ACCEPTANCES
Without prejudice to Parts B and C of Appendix I to this document, the
Offeror reserves the right, subject to the City Code, to treat as valid in
whole or in part any acceptance of the Offer which is not entirely in order
or which is not accompanied by the relevant TTE instruction or (as
applicable) the relevant share certificate(s) and/or other document(s) of
title. In that event, no payment of cash under such acceptances will be
made until after the relevant transfer to escrow has settled or (as
applicable) the relevant share certificate(s) and/or other document(s) of
title or indemnities satisfactory to the Offeror have been received.
(G) OVERSEAS T&N SHAREHOLDERS
The attention of T&N Shareholders who are residents or citizens of
jurisdictions outside the United Kingdom and any person (including, without
limitation, any nominee, custodian or trustee) who may have an obligation to
forward this document outside the United Kingdom is drawn to paragraph 6 of
Part B and paragraph (b) of Part C of Appendix I to this document and to the
relevant provisions of the Form of Acceptance.
The Offer is not being made, directly or indirectly, in or into or by use of
the mails of, or by any means or instrumentality of interstate or foreign
commerce of, or any facilities of a securities exchange of Canada
(including, but not limited to, post, facsimile transmission, telex or
telephone). Accordingly, any purported acceptance of the Offer by T&N
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Shareholders who are unable to give the warranty set out in paragraph (b) of
Part C of Appendix I to this document, is liable to be disregarded.
IF YOU ARE IN ANY DOUBT AS TO THE PROCEDURE FOR ACCEPTANCE, PLEASE CONTACT THE
RECEIVING AGENT BY TELEPHONE ON 0117 937 0672 OR AT THE ADDRESS IN PARAGRAPH (B)
ABOVE. YOU ARE REMINDED THAT, IF YOU ARE A CREST SPONSORED MEMBER, YOU SHOULD
CONTACT YOUR CREST SPONSOR BEFORE TAKING ANY ACTION.
11. SETTLEMENT
Subject to the Offer becoming or being declared unconditional in all respects
(except as provided in paragraph 6 of Part B of Appendix I in the case of
certain overseas T&N Shareholders), settlement of the consideration to which any
T&N Shareholder is entitled under the Offer will be effected (i) in the case of
acceptances received, complete in all respects, by the date on which the Offer
becomes or is declared unconditional in all respects, within 14 days of such
date, or (ii) in the case of acceptances of the Offer received, complete in all
respects, after the date on which the Offer becomes or is declared unconditional
in all respects but while it remains open for acceptance, within 14 days of such
receipt, in the following manner:
(A) T&N ORDINARY SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST)
Where an acceptance relates to T&N Ordinary Shares in uncertificated form,
settlement of any cash consideration to which the accepting T&N Shareholder
is entitled will be despatched by means of CREST by the Offeror procuring
the creation of an assured payment obligation in favour of the accepting T&N
Shareholder's payment bank in respect of the cash consideration due, in
accordance with the CREST assured payment arrangements.
The Offeror reserves the right to settle all or any part of the
consideration referred to in this paragraph (a), for all or any accepting
T&N Shareholder(s), in the manner referred to in paragraph (b) below if, for
any reason, it wishes to do so.
(B) T&N ORDINARY SHARES IN CERTIFICATED FORM
Where an acceptance relates to T&N Ordinary Shares in certificated form,
settlement of any cash consideration to which the accepting T&N Shareholder
is entitled will be despatched by first class post (or by such other method
as the Panel may approve). All such cash payments will be made in pounds
sterling by cheque, drawn on a branch of a UK clearing bank.
(C) GENERAL
If the Offer does not become or is not declared unconditional in all
respects (i) share certificate(s) and/or other document(s) of title will be
returned by post (or by such other method as may be approved by the Panel),
within 14 days of the Offer lapsing, to the person or agent whose name and
address (outside Canada) is set out in Box 6 of the Form of Acceptance or,
if none is set out, to the first named holder at his/her registered address
(outside Canada) and (ii) the Escrow Agent will, immediately after the
lapsing of the Offer (or within such longer period, not exceeding 14 days
after the Offer lapsing, as the Panel may permit), give TFE instructions to
CRESTCo to transfer all T&N Ordinary Shares held in escrow balances and in
relation to which it is the Escrow Agent for the purposes of the Offer to
the original available balances of the T&N Shareholders concerned.
All documents and remittances sent by, to or from T&N Shareholders or their
appointed agents will be sent at their own risk.
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12. FURTHER INFORMATION
Your attention is drawn to the further information contained in the Appendices
to this document.
Yours sincerely
for and on behalf of
Morgan Stanley & Co. Limited
SIMON ROBEY
Managing Director
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APPENDIX I
TERMS AND CONDITIONS OF THE OFFER
PART A--CONDITIONS OF THE OFFER
The Offer is subject to the following conditions:
(a) valid acceptances being received (and not, where permitted, withdrawn) by
not later than 3.00 p.m. (London time) on 12 December 1997 (or such later
time(s) and/or date(s) as the Offeror may, subject to the rules of the City
Code, decide) in respect of not less than 90 per cent (or such lower
percentage as the Offeror may decide) in nominal value of the T&N Ordinary
Shares to which the Offer relates, provided that this condition will not be
satisfied unless the Offeror and/or its wholly-owned subsidiaries shall have
acquired or agreed to acquire (whether pursuant to the Offer or otherwise)
T&N Ordinary Shares carrying in aggregate more than 50 per cent of the
voting rights then normally exercisable at a general meeting of T&N,
including for this purpose (to the extent, if any, required by the Panel)
any such voting rights attaching to any T&N Ordinary Shares that are
unconditionally allotted or issued before the Offer becomes or is declared
unconditional as to acceptances, whether pursuant to the exercise of any
outstanding subscription or conversion rights or otherwise and, for this
purpose, (i) the expression "T&N Ordinary Shares to which the Offer relates"
shall be construed in accordance with sections 428 to 430F of the Companies
Act 1985, and (ii) T&N Ordinary Shares which have been unconditionally
allotted shall be deemed to carry the voting rights which they will carry
upon issue; provided that, unless the Offeror otherwise determines, this
condition (a) can only be treated as satisfied at a time when all of the
other conditions in paragraphs (b)-(i) inclusive are either satisfied or
waived;
(b) no government or governmental, quasi-governmental, supranational, statutory,
regulatory or investigative body, authority (including any national
anti-trust or merger control authorities), court, trade agency, association,
institution or professional or environmental body or any other person or
body whatsoever in any relevant jurisdiction (each a "Third Party") having
decided to take, institute, implement or threaten any action, proceeding,
suit, investigation, enquiry or reference or made, proposed or enacted any
statute, regulation, decision or order or required any action to be taken or
information to be provided or otherwise having done anything and there not
continuing to be outstanding any statute, regulation or order thereof which
would or might reasonably be expected to:
(i) make the Offer or its implementation, or the proposed
acquisition by the Offeror or any member of the Wider Federal-Mogul
Group of any shares or other securities in, or control of, T&N, void,
illegal or unenforceable, or otherwise directly or indirectly
restrain, prohibit, restrict or delay the same or impose additional
conditions or obligations with respect thereto, or otherwise impede,
challenge or interfere therewith, or require amendment to the terms of
the Offer or the proposed acquisition of any T&N Ordinary Shares or
the acquisition of control of T&N by the Offeror, in each case in a
manner which is material in the context of the Offer;
(ii) require, prevent or delay the divestiture by any member of the Wider
Federal-Mogul Group of any of its shares or other securities in T&N;
(iii) require, prevent or delay the divestiture or alter the terms envisaged
for any proposed divestiture by any member of the Wider Federal-Mogul
Group or by T&N or any member of the Wider T&N Group, in any such case
of all or any portion of their respective businesses, assets or
property (which, in each case, would be material in the context of the
Wider Federal-Mogul Group or the Wider T&N Group, as appropriate, taken
as a whole) or impose any limitation on the ability of any of them to
conduct their respective businesses (or any of them) or own their
respective assets or properties or any part thereof (which, in each
case, would be material in the context of the Wider Federal-Mogul Group
or the Wider T&N Group, as appropriate, taken as a whole);
(iv) impose any limitation on, or result in a delay in, the ability of any
member of the Wider Federal-Mogul Group to acquire, or to hold or to
exercise effectively, directly or indirectly, all or any rights of
ownership of shares or other securities (or the equivalent) in, or to
exercise management or control over, T&N or any member of the Wider T&N
Group or any member of the Wider Federal-Mogul Group (which, in any
such case, would be material in the context of the Wider Federal-Mogul
Group or the Wider T&N Group, as the case may be, taken as a whole);
(v) any member of the Wider Federal-Mogul Group or the Wider T&N
Group to acquire, or to offer to acquire, any shares or other
securities (or the equivalent) in any member of the Wider
Federal-Mogul Group or the Wider T&N Group owned by any third party
where such acquisition would be material in the context of the Wider
Federal-Mogul Group or the Wider T&N Group, as the case may be, taken
as a whole;
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(vi) impose any limitation on the ability of any member of the Wider
Federal-Mogul Group or the Wider T&N Group to integrate its business,
or any part of it, with the businesses of any other member of the Wider
Federal-Mogul Group or the Wider T&N Group (in each case, as is
material in the context of the Wider Federal-Mogul Group or the Wider
T&N Group, as the case may be, taken as a whole);
(vii) result in any member of the Wider T&N Group or the Wider Federal-Mogul
Group ceasing to be able to carry on business under any name under
which it presently does so (the consequences of which would be material
in the context of the Wider Federal-Mogul Group or the Wider T&N Group,
as the case may be, taken as a whole); or
(viii) otherwise adversely affect the business or profits or prospects of any
member of the Wider T&N Group or any member of the Wider Federal-Mogul
Group (in a manner which would be material in the context of the Wider
T&N Group or the Wider Federal-Mogul Group, as the case may be, taken
as a whole);
and all applicable waiting and other time periods during which any Third Party
could take, institute, implement or threaten any such action, proceeding, suit,
investigation, enquiry or reference under the laws of any jurisdiction, having
expired, lapsed or been terminated;
(c) without limitation of paragraph (b) above:
(i) the Office of Fair Trading having indicated, in terms satisfactory to
the Offeror, that it is not the intention of the Secretary of State for
Trade and Industry to refer the proposed acquisition of T&N by the
Offeror, or any matters arising therefrom, to the Monopolies and Mergers
Commission;
(ii) all filings having been made and all or any appropriate waiting periods
(including any extensions thereof) under the United States
Hart-Scott-Rodino Antitrust Improvements Act 1976 and the regulations
thereunder having expired, lapsed or been terminated as appropriate in
each case in respect of the Offer and the proposed acquisition of any
T&N Ordinary Shares, or control of T&N by the Offeror or any member of
the Wider Federal-Mogul Group;
(d) all necessary filings having been made and all appropriate waiting and other
time periods under any applicable legislation and regulations in any
jurisdiction having expired, lapsed or been terminated and all statutory or
regulatory obligations in any jurisdiction having been complied with in each
case in connection with the Offer or the acquisition by any member of the
Wider Federal-Mogul Group of any shares or other securities in, or control
of, T&N or any member of the Wider T&N Group and all authorisations, orders,
recognitions, grants, determinations, certificates, consents, clearances,
confirmations, licences, permissions and approvals ("Authorisations")
reasonably considered necessary or appropriate by the Offeror (or any member
of the Wider Federal-Mogul Group) for or in respect of the Offer or the
proposed acquisition of any shares or other securities in, or control of,
T&N or any member of the Wider T&N Group by any member of the Wider
Federal-Mogul Group or the carrying on by any member of the Wider T&N Group
of its business having been obtained, in terms and in a form reasonably
satisfactory to the Offeror, from all appropriate Third Parties or from any
persons or bodies with whom any member of the Wider T&N Group has entered
into contractual arrangements, in each case where the absence of such
Authorisation would have a material adverse effect on the Wider T&N Group
taken as a whole and all such Authorisations remaining in full force and
effect and there being no notice or intimation of an intention to revoke or
not to renew the same;
(e) except as fairly disclosed to the Offeror by or on behalf of T&N prior to 16
October 1997, there being no provision of any arrangement, agreement,
licence, permit, franchise or other instrument to which any member of the
Wider T&N Group is a party or by or to which any such member or any of its
respective assets may be bound or be subject and which, in consequence of
the Offer or proposed acquisition by any member of the Wider Federal-Mogul
Group of some or all of the share capital of T&N or other securities in T&N
or because of a change in the control or management of T&N or any member of
the Wider T&N Group or otherwise, could or might reasonably be expected to
result in, to an extent which would be material in the context of the Wider
T&N Group taken as a whole:
(i) any monies borrowed by or any other indebtedness or liabilities, actual
or contingent, of any member of the Wider T&N Group being or becoming
payable or capable of being declared repayable immediately or prior to
their or its stated maturity, or the ability of any such member to
borrow monies or incur any indebtedness being withdrawn or inhibited;
(ii) the creation or enforcement of any mortgage, charge or other security
interest over the whole or any part of the business, property or assets
of any member of the Wider T&N Group or any such mortgage, charge or
other security interest becoming enforceable or being enforced;
(iii) any such arrangement, agreement, licence, permit, franchise or
instrument, or the rights, liabilities, obligations or interests of any
member of the Wider T&N Group thereunder, being, or becoming capable of
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being, terminated or adversely modified or affected or any action being
taken or any obligation or liability arising thereunder;
(iv) any asset or interest of any member of the Wider T&N Group being or
falling to be disposed of or charged or any right arising under which
any such asset or interest could be required to be disposed of or
charged;
(v) any member of the Wider T&N Group ceasing to be able to carry on
business under any name under which it presently does so;
(vi) the creation of material liabilities actual or contingent by any such
member;
(vii) any interest or business of any member of the Wider T&N Group in or
with any other person, firm or body (or any arrangement or arrangements
relating to any such interest or business) being terminated, adversely
modified or affected; or
(viii) the respective value, financial or trading position of any member of
the Wider T&N Group being prejudiced or adversely affected;
(f) since 31 December 1996 and except as disclosed in the T&N's annual report
and accounts for the year then ended or as otherwise publicly announced by
delivery of an announcement to the Company Announcements Office of the
London Stock Exchange or as would be disclosed by a search at the Companies'
Registry for England and Wales against T&N made on 14 October 1997 or as
fairly disclosed to the Offeror prior to 16 October 1997, or as disclosed in
the Interim Statement of T&N for the six month period ended on 30 June 1997,
no member of the Wider T&N Group having:
(i) (save as between T&N and wholly-owned subsidiaries of T&N) issued or
agreed to or authorised or proposed the issue of additional shares of
any class, or securities convertible into, or rights, warrants or
options to subscribe for or acquire, any such shares or convertible
securities except for any options granted as disclosed to the Offeror
prior to 16 October 1997 and any shares issued upon the exercise of any
options granted under any of the T&N Shares Option Schemes or pursuant
to elections for scrip dividends in relation to the second interim
dividend declared on 28 August 1997;
(ii) recommended, declared, paid or made or proposed to recommend, declare
or pay any bonus, dividend or other distribution (save as between a
wholly-owned subsidiary of T&N and T&N or another wholly-owned
subsidiary of T&N) other than the T&N Dividend;
(iii) made or authorised or proposed or announced any change in its loan
capital;
(iv) merged with or demerged or acquired any body corporate or acquired or
disposed of or transferred, mortgaged or charged or created any
security interest over any assets or (save in the ordinary course of
business) any right, title or interest in any assets (including shares
and trade investments) or authorised, proposed or announced its
intention so to do (in each case with a material adverse effect on the
Wider T&N Group taken as a whole);
(v) issued, authorised or proposed the issue of any debentures or (save in
the ordinary course of business) incurred any indebtedness or contingent
liability which is material in the context of the Wider T&N Group taken
as a whole;
(vi) purchased, redeemed or repaid or announced any proposal to purchase,
redeem or repay any of its own shares or other securities or reduced or
made any other change to any part of its share capital;
(vii) entered into or varied, or authorised, proposed or announced its
intention to enter into or vary any contract, transaction, arrangement
or commitment (whether in respect of capital expenditure or otherwise)
which is of a long term, onerous, or unusual nature or magnitude or
which would be restrictive on the business of any member of the Wider
T&N Group or the Wider Federal-Mogul Group, or which involves or would
involve an obligation of such a nature or magnitude or which could be
so restrictive or which is other than in the ordinary course of
business in each case which is material in the context of the Wider T&N
Group or the Wider Federal-Mogul Group, as the case may be, taken as a
whole;
(viii) implemented or effected, or authorised, proposed or announced its
intention to implement, effect, authorise or propose any
reconstruction, amalgamation, scheme, commitment or other transaction
or arrangement otherwise than in the ordinary course of business which
is material in the context of the Wider T&N Group taken as a whole;
(ix) entered into or changed or made any offer (which remains open for
acceptance) to enter into or change the terms of any contract with any
of the directors or senior executives of any member of the Wider T&N
Group;
(x) taken any corporate action or had any legal proceedings instituted or
threatened against it for its winding-up (voluntarily or otherwise),
dissolution or reorganisation or for the appointment of a receiver,
administrator,
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administrative receiver, trustee or similar officer of all or
any of its assets and revenues or any analogous proceedings in any
jurisdiction or appointed any analogous person in any jurisdiction (in
each case with a material adverse effect on the Wider T&N Group taken
as a whole);
(xi) been unable or admitted in writing that it is unable to pay its debts
or having stopped or suspended (or threatened to stop or suspend)
payment of its debts generally or ceased or threatened to cease
carrying on all or a substantial part of its business (in each case
with a material adverse effect on the Wider T&N Group taken as a
whole);
(xii) waived or compromised any claim which is material in the context of the
Wider T&N Group, taken as a whole;
(xiii) made any alteration to its memorandum or articles of association, or
any other incorporation document; or
(xiv) entered into any agreement, commitment or arrangement or passed any
resolution or announced any intention with respect to any of the
transactions, matters or events referred to in this condition;
(g) since 31 December 1996 and except as disclosed in the T&N annual report and
accounts for the year then ended, or as otherwise publicly announced by
delivery of an announcement to the Company Announcements Office of the
London Stock Exchange or as fairly disclosed to the Offeror prior to 16
October 1997, or as disclosed in the Interim Statement of T&N for the six
month period ended on 30 June 1997:
(i) there having been no material adverse change or deterioration in the
business, assets, financial or trading position or profits, assets or
prospects of the Wider T&N Group taken as a whole;
(ii) no litigation, arbitration proceedings, prosecution or other legal
proceedings to which any member of the Wider T&N Group is or may become
a party (whether as plaintiff or defendant or otherwise) or an
investigation (save as a result of the Offer) by any Third Party having
been threatened, announced or instituted by or remaining outstanding,
against or in respect of any member of the Wider T&N Group which is
material in the context of the Wider T&N Group taken as a whole;
(iii) no contingent or other liability having arisen which would or could
reasonably be expected to materially and adversely affect the Wider T&N
Group taken as a whole; and
(iv) there having been no enquiry or investigation (save as a result of the
Offer) by, or complaint or, reference to, any third party of a material
nature to T&N in respect of any member of the Wider T&N Group and no
such enquiry, investigation, complaint or reference having been
threatened or instituted;
(h) the Offeror not having discovered:
(i) that any financial or business or other information disclosed
at any time by or on behalf of any member of the Wider T&N Group,
whether publicly, to any member of the Wider Federal-Mogul Group or
otherwise, is misleading, contains a misrepresentation of fact or
omits to state a fact necessary to make the information contained
therein not misleading in any case which has not subsequently been
corrected by such disclosure and, in any event, which is material in
the context of the Wider T&N Group;
(ii) that any member of the Wider T&N Group or partnership, company or other
entity in which any member of the Wider T&N Group has an interest and
which is not a subsidiary undertaking of T&N is subject to any
liability, contingent or otherwise, which is not disclosed in T&N's
annual report and accounts for the financial year ended 31 December
1996 and which is material in the context of the Wider T&N Group taken
as a whole; or
(iii) any information which materially affects (in the context of the Wider
T&N Group as a whole) the import of any information disclosed prior to
16 October 1997 by any member of the Wider T&N Group to the Offeror;
(i) the Offeror not having discovered:
(i) that save as fairly disclosed to the Offeror prior to 16
October 1997 any past or present member of the Wider T&N Group has not
complied with all applicable legislation or regulations of any
jurisdiction with regard to the disposal, discharge, spillage, leak or
emission of any waste or hazardous substance or any substance likely
to impair the environment or harm human health, or otherwise relating
to environmental matters, or that there has otherwise been any such
disposal, discharge, spillage, leak or emission (whether or not the
same constituted a non-compliance by any person with any such
legislation or regulations and wherever the same may have taken place)
which, in any such case, would be likely to give rise to any liability
(whether actual or contingent) on the part of any member of the Wider
T&N Group which would be material in the context of the Wider T&N
Group taken as a whole;
(ii) that save as fairly disclosed to the Offeror prior to 16 October 1997
there is, or is likely to be, any material liability (in the context of
the Wider T&N Group taken as a whole), whether actual or contingent, to
make
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good, repair, reinstate or clean up any property now or previously
owned, occupied or made use of by any past or present member of the
Wider T&N Group or any controlled waters under any environmental
legislation, regulation, notice, circular or order of any relevant
authority or third party or otherwise; or
(iii) save as fairly disclosed to the Offeror prior to 16 October 1997 that
circumstances exist whereby a person or class of persons would be
likely to have any material (in the context of the Wider T&N Group
taken as a whole) claim or claims in respect of any product or process
of manufacture or materials used therein now or previously
manufactured, sold or carried out by any past or present member of the
Wider T&N Group.
For the purpose of these conditions: (a) "subsidiary undertaking", "associated
undertaking" and "undertaking" have the meanings given by the Companies Act 1985
(but for this purpose ignoring paragraph 20(1)(b) of Schedule 4A of the
Companies Act 1985) and (b) "substantial interest" means a direct or indirect
interest in 20 per cent or more of the voting equity capital of an undertaking.
Subject to the requirements of the Panel, the Offeror reserves the right to
waive all or any of the above conditions, in whole or in part, except condition
(a).
Conditions (b) to (i) (inclusive) must be fulfilled or waived by midnight on the
21st day after the later of 12 December 1997 and the date on which condition (a)
is fulfilled (or in each case such later date as the Panel may agree), failing
which the Offer will lapse. The Offeror shall be under no obligation to waive
(if so capable of waiver) or treat as fulfilled any of conditions (b) to (i)
(inclusive) by a date earlier than the latest date specified above for the
fulfilment thereof notwithstanding that the other conditions of the Offer may at
such earlier date have been waived or fulfilled and that there are at such
earlier date no circumstances indicating that any of such conditions may not be
capable of fulfilment.
If the Offeror is required by the Panel to make an offer for T&N Ordinary Shares
under the provisions of Rule 9 of the City Code, the Offeror may make such
alterations to the conditions of the Offer, including to condition (a) above, as
are necessary to comply with the provisions of that Rule.
The Offer will lapse if the acquisition of T&N is referred to the Monopolies and
Mergers Commission before 3.00 p.m. on the later of 12 December 1997 and the
date when the Offer becomes or is declared unconditional as to acceptances.
If the Offer lapses, the Offer will cease to be capable of further acceptance
and persons accepting the Offer and the Offeror shall thereupon cease to be
bound by acceptances delivered on or before the date on which the Offer so
lapses.
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PART B--FURTHER TERMS OF THE OFFER
The following further terms apply, unless the context otherwise requires, to the
Offer.
Except where the context requires otherwise, references in Parts B and C of this
Appendix I and in the Form of Acceptance to:
(a) the "acceptance condition" means the condition as to acceptances of the
Offer set out in paragraph (a) of Part A of this Appendix I and references
to the Offer becoming unconditional as to acceptances will be construed
accordingly;
(b) "acceptances of the Offer" shall include deemed acceptances of the Offer;
(c) "Offer period" means, in relation to the Offer, the period commencing on 26
September 1997 until whichever of the following dates shall be the later:
(i) 12 December 1997, (ii) the date on which the Offer lapses, and (iii) the
date on which the Offer becomes unconditional;
(d) the "Offer" will include any revision, variation, renewal or extension of
the Offer; and
(e) the "Offer becoming unconditional" shall (unless the context expressly
requires otherwise) (i) where made in this document (other than in this Part
B of Appendix I) or in the Form of Acceptance, mean the Offer becoming or
being declared unconditional in all respects, and (ii) where made in this
Part B of Appendix I, mean the Offer becoming or being declared
unconditional as to acceptances, whether or not any other condition of the
Offer remains to be fulfilled.
1. ACCEPTANCE PERIOD
(a) The Offer will initially be open for acceptance until 3.00 p.m. on 12
December 1997.
(b) Although no revision is envisaged, if the Offer is revised, it will remain
open for acceptance for a period of at least 14 days (or such lesser period
as may be permitted by the Panel) from the date on which written
notification of the revision is posted to T&N Shareholders. Except with the
consent of the Panel, no revision of the Offer may be made or posted after
29 December 1997 or, if later, the day falling 14 days prior to the last
date on which the Offer is able to become unconditional.
(c) The Offer, whether revised or not, shall not (without the consent of the
Panel) be capable of becoming unconditional after midnight on 12 January
1998 (or any earlier time and/or date beyond which the Offeror has stated
that the Offer will not be extended and in respect of which it has not
withdrawn that statement) nor of being kept open for acceptance after that
time and date unless the Offer has previously become unconditional. However,
the Offeror reserves the right, with the permission of the Panel, to extend
the time for the Offer to become unconditional to a later time and/or date.
The Offeror may not, save with the permission of the Panel, for the purpose
of determining whether the acceptance condition has been fulfilled, take
into account acceptances of the Offer received or purchases of T&N Ordinary
Shares made after 1.00 p.m. (London time) on 12 January 1998 (or any earlier
time and/or date beyond which the Offeror has stated that the Offer will not
be extended and in respect of which it has not withdrawn that statement) or
any such later time and/or date to which the Offeror has stated (with the
permission of the Panel) that the Offer will be extended, as the case may
be.
(d) If the Offer becomes unconditional, the Offer will remain open for
acceptance for not less than 14 days from the date on which it would
otherwise have expired. If the Offer has become unconditional and it is
stated that the Offer will remain open until further notice, then not less
than 14 days' notice will be given prior to the closing of the Offer to
those T&N Shareholders who have not accepted the Offer.
(e) If a competitive situation arises after a "no extension" and/or "no
increase" statement (as determined by the Panel) has been made by or on
behalf of the Offeror in relation to the Offer, the Offeror may, if it has
specifically reserved the right to do so at the same time such statement is
made (or otherwise with the consent of the Panel), withdraw such statement
and be free to extend and/or increase the Offer if it complies with the
requirements of the City Code and in particular that it:
(i) announces such withdrawal within four business days after the
announcement of the competing offer and gives notice to the T&N
Shareholders to that effect in writing or (in the case of T&N
Shareholders with registered addresses outside the United Kingdom or
whom the Offeror knows to be nominees, trustees or custodians holding
T&N Ordinary Shares for such persons) by announcement in the United
Kingdom at the earliest practicable opportunity; and
(ii) gives any T&N Shareholders who accepted the Offer after the date of
such statement a right of withdrawal as described in paragraph 3(c)
below.
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(f) The Offeror may choose not to be bound by the terms of a "no extension" or
"no increase" statement if it would otherwise prevent the posting of an
increased or improved Offer (i) if it has reserved the right to do so and
the increased or improved Offer is recommended for acceptance by the board
of T&N, or (ii) with the consent of the Panel.
2. ANNOUNCEMENTS
(a) Without prejudice to paragraph 3(a) of this Part B, by 8.30 a.m. (London
time) on the business day (the "relevant day") next following the day on
which the Offer is due to expire or becomes unconditional or is revised or
extended (or such later time and/or date as the Panel may agree), the
Offeror will make an appropriate announcement and simultaneously inform the
London Stock Exchange of the state of the Offer. Such announcement will
(unless otherwise permitted by the Panel) also state the total number of T&N
Ordinary Shares and rights over such shares (as nearly as practicable):
(i) for which acceptances of the Offer have been received;
(ii) acquired or agreed to be acquired during the Offer period by or on
behalf of the Offeror and any persons acting in concert with the
Offeror;
(iii) held prior to the Offer period by or on behalf of the Offeror and any
persons acting in concert with the Offeror; and
(iv) for which acceptances of the Offer have been received from persons
acting in concert with the Offeror;
and the announcement will specify the percentages of T&N Ordinary Shares
represented by each of these figures. In computing the number of T&N
Ordinary Shares represented by acceptances and purchases for the above
purposes, only those acceptances and purchases permitted to be counted
towards fulfilling the acceptance condition in accordance with paragraphs
5(d) and 5(e) below shall be included in the totals (except as otherwise
agreed by the Panel).
(b) Any decision to extend the time and/or date by which the acceptance
condition has to be fulfilled may be made by the Offeror at any time up to,
and will be announced not later than, 8.30 a.m. (London time) on the
relevant day (or such later time and/or date as the Panel may agree) and the
announcement will state the next expiry date (unless the Offer is then
unconditional in which case the announcement may state that the Offer will
remain open until further notice).
(c) In this Appendix I, references to the making of an announcement or the
giving of notice in each case by or on behalf of the Offeror include the
release of an announcement by the Offeror, public relations consultants of
the Offeror or by Morgan Stanley to the press and the delivery by hand or
telephone, facsimile or telex transmission or other electronic transmission
of an announcement to the London Stock Exchange. An announcement made
otherwise than to the London Stock Exchange will be notified simultaneously
to the London Stock Exchange.
3. RIGHTS OF WITHDRAWAL
(a) If the Offeror, having announced the Offer to be unconditional, fails to
comply by 3.30 p.m. (London time) on the relevant day (or such later time
and/or date as the Panel may agree) with any of the other requirements
specified in paragraph 2(a) of this Part B, an accepting T&N Shareholder may
immediately thereafter withdraw his acceptance of the Offer by written
notice, received either by post, or by hand, to the Receiving Agent, The
Royal Bank of Scotland plc, Registrars Department, New Issues Section, PO
Box 859, Consort House, East Street, Bedminster, Bristol BS99 1XZ or, by
hand only during normal business hours, to The Royal Bank of Scotland plc,
Registrars Department, New Issues Section, PO Box 633, 5-10 Great Tower
Street, London EC3R 5ER. Subject to paragraph 1(c) of this Part B, this
right of withdrawal may be terminated not less than eight days after the
relevant day by the Offeror confirming that the Offer is still unconditional
and complying with the other requirements specified in paragraph 2(a) of
this Part B. If any such confirmation is given, the first period of 14 days
referred to in paragraph 1(d) of this Part B will run from the date of such
confirmation and compliance.
(b) If by 3.00 p.m. (London time) on 2 January 1998 (or such later time and/or
date as the Panel may agree) the Offer has not become unconditional, an
accepting T&N Shareholder may thereafter withdraw his acceptance of the
Offer by written notice, received either by post or by hand to the Receiving
Agent at any time before the earlier of (i) the time when the Offer becomes
unconditional and (ii) the final time for lodgement of acceptances of the
Offer which can be taken into account in accordance with paragraph 1(c) of
this Part B.
(c) If a "no increase" and/or a "no extension" statement has been withdrawn in
accordance with paragraph 1(e) of this Part B, any T&N Shareholder who
accepts the Offer after the date of such statement may withdraw that
acceptance thereafter in the manner referred to in paragraph 3(a) of this
Part B not later than the eighth day after the date on which written notice
of such withdrawal is posted to the relevant T&N Shareholder.
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(d) Except as provided by this paragraph 3 and paragraph 4(c) below, acceptances
of the Offer and elections shall be irrevocable.
(e) In this paragraph 3, "written notice" (including any letter of appointment,
direction or authority) means notice in writing bearing the original
signature(s) of the relevant accepting T&N Shareholder(s) or his or their
agent(s) duly appointed in writing (evidence of whose appointment, in a form
reasonably satisfactory to the Offeror, is produced with the notice). Telex
or facsimile transmission or copies will not be sufficient. No notice which
is postmarked in or otherwise appears to the Offeror or its agents to have
been sent from Canada will be treated as valid.
4. REVISIONS OF THE OFFER
(a) Although no revision of the Offer is envisaged, if the Offer (in its
original or any previously revised form(s)) is revised (either in its terms
or conditions or in the value or form of the consideration offered or
otherwise), which the Offeror reserves the right to do, and any such
revision represents, on the date on which such revision is announced (on
such basis as Morgan Stanley may consider appropriate) an improvement (or no
diminution) in the value of the consideration previously offered, the
benefit of the revised Offer, will, subject as provided in this paragraph 4
and in paragraph 6 of this Part B, be made available to any T&N Shareholder
who has accepted the Offer in its original or any previously revised form(s)
and not validly withdrawn such acceptance (each a "Previous Acceptor"). The
acceptance by or on behalf of a Previous Acceptor of the Offer in its
original or any previously revised form(s) shall, subject as provided in
this paragraph 4 and in paragraph 6 of this Part B, be deemed to be an
acceptance of the Offer as so revised and shall also constitute the
appointment of the Offeror or any director of the Offeror or any director of
Morgan Stanley as his/her attorney and/or agent with authority to accept
such revised Offer on behalf of such Previous Acceptor and, if such revised
Offer includes alternative forms of consideration, to make on his behalf
elections for and/or accept such alternative forms of consideration on his
behalf as such attorney and/or agent in his/her absolute discretion thinks
fit and to execute on behalf of and in the name of such Previous Acceptor
all such further documents (if any) as may be required to give full effect
to such acceptances and/or elections. In making any such acceptance or any
such election, such attorney and/or agent shall take into account the nature
of any previous election made by the Previous Acceptor and such other
factors or matters as he/she may reasonably consider relevant.
(b) The deemed acceptances referred to in this paragraph 4 shall not apply and
the powers of attorney and authorities conferred by paragraph 4(a) above
shall not be exercised by any director of the Offeror or any director of
Morgan Stanley if, as a result thereof, the Previous Acceptor would (on such
basis as Morgan Stanley may consider appropriate) thereby receive less in
aggregate in consideration than he/she would have received in aggregate in
consideration as a result of his/her acceptance of the Offer in the form in
which it was originally accepted and/or elected by him/her or on his/her
behalf or in any previously revised form(s) (unless such Previous Acceptor
has previously agreed in writing to receive less in aggregate
consideration). The deemed acceptances referred to in this paragraph 4 shall
not apply and the exercise of the powers of attorney and authorities
conferred by this paragraph 4 shall be ineffective to the extent that a
Previous Acceptor shall lodge with the Receiving Agent, within fourteen days
of the posting of the document pursuant to which the revision of the Offer
consideration referred to in paragraph 4(a) is made available to T&N
Shareholders, a Form of Acceptance or some other form issued by or on behalf
of the Offeror in which he/she validly elects to receive the consideration
receivable by him/ her under such revised Offer in some other manner than
that set out in his original acceptance.
(c) Subject to paragraph 4(b) above, the powers of attorney and authorities
referred to in this paragraph 4 and any acceptance of a revised Offer and/or
any election pursuant thereto shall be irrevocable unless and until the
Previous Acceptor becomes entitled to withdraw his acceptance under
paragraph 3 of this Part B and duly does so.
(d) The Offeror reserves the right to treat an executed Form of Acceptance
relating to the Offer (in its original or any revised form(s)) which is
received (or dated) on or after the announcement or issue of the Offer in
any revised form as a valid acceptance of the revised Offer and/or election
in respect of the revised Offer and such acceptance shall constitute an
authority in the terms of paragraph 4(a) of this Part B mutatis mutandis on
behalf of the relevant T&N Shareholder.
5. GENERAL
(a) Save with the consent of the Panel, the Offer will lapse unless all
conditions relating to the Offer have been fulfilled or (if capable of
waiver) waived or, where appropriate, have been determined by the Offeror in
its reasonable opinion to be or remain satisfied by midnight on 2 January
1998 or by midnight on the date which is 21 days after the date on which the
Offer becomes unconditional, whichever is the later, or such later date as
the Offeror may, with the consent of the Panel, decide. If the Offer lapses
for any reason, the Offer will cease to be capable of further acceptance and
T&N Shareholders and the Offeror will cease to be bound by prior
acceptances. The Offeror shall be under no obligation to waive or treat as
satisfied any of the conditions (b) to
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(i) (inclusive) of Part A of this Appendix I by a date earlier than the
latest date specified above for the satisfaction thereof notwithstanding
that the other conditions of the Offer may at such earlier date have been
waived or fulfilled and that there are at such earlier date no circumstances
indicating that any of such conditions may be capable of fulfilment.
(b) Except with the consent of the Panel, settlement of the consideration to
which any T&N Shareholder is entitled under the Offer will be implemented in
full in accordance with the terms of the Offer without regard to any lien,
right of set off, counterclaim or other analogous right to which the Offeror
may otherwise be, or claim to be, entitled as against such T&N Shareholder
and will (subject to paragraph 6 below) be effected not later than 14 days
after the later of (i) the date on which the Offer is declared unconditional
in all respects, and (ii) the date of receipt of a valid and complete Form
of Acceptance from such T&N Shareholder. Any cash consideration will be
settled by way of cheques drawn on a UK clearing bank. No consideration will
be sent to an address in Canada.
(c) The instructions, terms, authorities and provisions contained in or deemed
to be incorporated in the Form of Acceptance constitute part of the terms of
the Offer. Words and expressions defined in this document shall have the
same meaning when used in the Form of Acceptance unless the context
otherwise requires. The provisions of this Appendix I shall be deemed to be
incorporated in the Form of Acceptance.
(d) Without prejudice to the right reserved by the Offeror to treat a Form of
Acceptance as valid even though not entirely in order or not accompanied by
the relevant share certificate(s) and/or other document(s) of title or not
accompanied by the relevant transfer to escrow, except as otherwise agreed
by the Panel, an acceptance of the Offer will only be counted towards
fulfilling the acceptance condition if the requirements of Note 4 and, if
applicable, Note 6 to Rule 10 of the Code are satisfied in respect of such
acceptance.
(e) Except as otherwise agreed with the Panel, a purchase of T&N Ordinary Shares
by the Offeror or its nominee(s) (or, if the Offeror is required by the
Panel to make an offer for T&N Ordinary Shares under Rule 9 of the Code, a
person acting in concert with the Offeror or its nominee(s)), if any, will
only be counted towards fulfilling the acceptance condition if the
requirements of Note 5 and, if applicable, Note 6 to Rule 10 of the Code are
satisfied in respect of such purchase.
(f) Except with the consent of the Panel, the Offer will not become
unconditional until the Receiving Agent has issued a certificate to the
Offeror (or its agent) stating the number of T&N Ordinary Shares in respect
of which acceptances have been received which comply with Note 4 to Rule 10
of the City Code and the number of T&N Ordinary Shares otherwise acquired,
whether before or during the Offer period, which comply with Note 5 to Rule
10 of the City Code and, in each case, if appropriate, Note 6 to Rule 10 of
the City Code. Copies of such certificate will be sent to the Panel and to
the financial advisers of T&N as soon as possible after it is issued.
(g) The Offeror and Morgan Stanley reserve the right to treat Forms of
Acceptance as valid if not entirely in order or not accompanied by the
relevant share certificate(s) and/or other relevant document(s) of title or
not accompanied by the relevant transfer to escrow, or if received, by or on
behalf of either of them, at any place or places or in any manner determined
by them otherwise than as specified in this document or in the Form of
Acceptance.
(h) All references in this document and the Form of Acceptance to 12 December
1997 (other than those in the definition of "Offer period" and paragraph
1(a) of this Part B) shall (except where the context otherwise requires) be
deemed, if the expiry date of the Offer is extended, to refer to the expiry
date of the Offer as so extended.
(i) Any omission or failure to despatch this document, the Form of Acceptance,
any other document relating to the Offer and/or any notice required to be
despatched under the terms of the Offer to, or any failure to receive the
same by, any person to whom the Offer is made, or should be made, shall not
invalidate the Offer in any way. Subject to paragraph 6 below, the Offer
extends to any such persons to whom this document, the Form of Acceptance,
and/or any other such document or notice may not have been despatched or who
may not receive such documents and such persons may collect copies of those
documents during normal business hours from the Receiving Agent at either of
the addresses set out in paragraph 3(a) above.
(j) All powers of attorney, appointments of agents and authorities on the terms
conferred by or referred to in this Appendix I or in the Form of Acceptance
are given by way of security for the performance of the obligations of the
T&N Shareholder concerned and are irrevocable (in respect of powers of
attorney, in accordance with section 4 of the Powers of Attorney Act 1971)
except in the circumstances where the donor of such power of attorney,
appointment or authority is entitled to withdraw his acceptance in
accordance with paragraph 3 of this Part B and duly does so.
(k) All communications, notices, certificates, documents of title and
remittances to be delivered by or sent to or from T&N Shareholders (or their
designated agents) will be delivered by or sent to or from them (or their
designated agents) at their risk. No acknowledgement of receipt of any Form
of Acceptance, share certificate(s) and/or other document(s) of title will
be given by or on behalf of the Offeror.
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(l) The Offer and the Form of Acceptance and all acceptances thereof, elections
in respect thereunder and this document shall be governed by and construed
in accordance with English law. Execution by or on behalf of a T&N
Shareholder of a Form of Acceptance will constitute his submission, in
relation to all matters arising out of or in connection with the Offer, to
the jurisdiction of the courts of England and his agreement that nothing
shall limit the right of the Offeror or Morgan Stanley to bring any action,
suit or proceeding arising out of or in connection with the Offer and the
Form of Acceptance in any other manner permitted by law or in any court of
competent jurisdiction.
(m) If sufficient acceptances are received, the Offeror intends to apply the
provisions of sections 428 to 430F (inclusive) of the Companies Act 1985 to
acquire compulsorily any outstanding T&N Ordinary Shares to which the Offer
relates (as defined in the acceptance condition) and to procure the making
by T&N of an application in due course for cancellation of T&N's listing on
the London Stock Exchange.
(n) In relation to any acceptance of the Offer in respect of a holding of T&N
Shares which are in uncertificated form, the Offeror reserves the right to
make such alterations, additions or modifications as may be necessary or
desirable to give effect to any purported acceptance of the Offer, whether
in order to comply with the facilities or requirements of CREST or
otherwise, provided such alterations, additions or modifications are
consistent with the requirements of the City Code or are otherwise made with
the consent of the Panel.
(o) If the Offer does not become unconditional in all respects, the Form of
Acceptance, share certificates and/or other documents of title will be
returned by post (or such other methods as may be approved by the Panel)
within 14 days of the Offer lapsing, at the risk of the person entitled
thereto, to the person or agent whose name and address is set out in the
Form of Acceptance, or, if no address is set out, the first named holder at
his/her registered address (in all cases outside Canada). The Receiving
Agent will, immediately after the lapsing of the Offer (or within such
longer period as the Panel may permit, not exceeding 14 days of the lapsing
of the Offer), give instructions to CRESTCo to transfer all T&N Ordinary
Shares held in escrow balances, and in relation to which it is the escrow
agent for the purposes of the Offer, to the original available balances of
the T&N Shareholders concerned.
(p) The Offer is made on 13 November 1997 and is capable of acceptance from and
after that time.
(q) For the purpose of determining whether the acceptance condition has been
fulfilled at any particular time, Federal-Mogul shall not be bound (unless
otherwise required by the Panel) to take into account any T&N Ordinary
Shares which have been unconditionally issued or allotted before such
determination falls to be made unless T&N has notified Federal-Mogul in
writing of the relevant details of such allotment or issue prior thereto.
Telex or facsimile transmission or copies will not be sufficient for this
purpose.
(r) All references in this Appendix I to any statute or statutory provision
shall include a statute or statutory provision which amends, consolidates or
replaces the same (whether before or after the date hereof).
6. OVERSEAS T&N SHAREHOLDERS
(a) The making of the Offer in, or to T&N Shareholders who are, or are
custodians, nominees or trustees for, citizens, residents or nationals of,
jurisdictions outside the UK may be prohibited or affected by the laws of
the relevant overseas jurisdiction. Such T&N Shareholders should inform
themselves about and observe any applicable legal requirements. It is the
responsibility of any such T&N Shareholder wishing to accept the Offer to
satisfy himself/herself as to the full observance of the laws of the
relevant jurisdiction in connection therewith, including the obtaining of
any governmental, exchange control or other consents which may be required
or the compliance with other formalities needing to be observed and the
payment of any issue, transfer or other taxes or duties in such
jurisdiction. Any such T&N Shareholder will also be responsible for payment
of any such issue, transfer or other taxes or duties or other requisite
payments due in such jurisdiction by whomsoever payable and the Offeror and
any person acting on their behalf shall be entitled to be fully indemnified
and held harmless by such T&N Shareholder for any such issue, transfer or
other taxes or duties as Federal-Mogul or such person may be required to
pay.
(b) In particular, the Offer is not being made, directly or indirectly, in or
into Canada, or by use of the mails of Canada or by any means or
instrumentality of interstate or foreign commerce of, or of any facilities
of a securities exchange of Canada (including, without limitation, facsimile
transmission, telex and telephone).
Accordingly, copies of this document and the Form of Acceptance and any
related offering documents are not being, and must not be, mailed or
otherwise distributed or sent in, into or from Canada. Persons receiving
such documents (including, without limitation, custodians, nominees and
trustees) must not distribute, send or mail them in, into or from Canada
including to T&N Shareholders, or use Canadian mails or any such means,
instrumentality or facility for any purpose, directly or indirectly, in
connection with the Offer, and so doing may invalidate any related purported
acceptance of the Offer. Persons wishing to accept the Offer must not use
Canadian mails or any such means, instrumentality or facility for any
purpose directly or indirectly related to
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acceptance of the Offer. Envelopes containing Forms of Acceptance should not
be postmarked in Canada or otherwise despatched from Canada and all
acceptors must provide addresses outside Canada for the receipt of
consideration to which they are entitled under the Offer or for the return
of Forms of Acceptance, share certificate(s) and/or other document(s) of
title.
(c) A T&N Shareholder will be deemed NOT to have validly accepted the Offer if
(i) he/she cannot give the representation and warranty set out in paragraph
(b) of Part C of this Appendix I; (ii) having completed Box 3 of the Form of
Acceptance with an address in Canada or having a registered address in
Canada he/she does not insert in Box 6 of the Form of Acceptance the name
and address of a person or agent outside Canada to whom he/she wishes the
consideration to which he/she is entitled under the Offer to be sent; (iii)
he/she inserts in Box 6 of the Form of Acceptance the name and address of a
person or agent in Canada to whom he/she wishes the consideration to which
he/she is entitled under the Offer to be sent; or (iv) the Form of
Acceptance received from him/her is in an envelope postmarked in, or which
otherwise appears to the Offeror or its agents to have been sent from,
Canada.
The Offeror reserves the right in its sole discretion, to investigate, in
relation to any acceptance, whether the representation and warranty set out
in paragraph (b) of Part C of this Appendix I could have truthfully been
given by the relevant T&N Shareholder and, if such investigation is made
and, as a result, the Offeror cannot satisfy itself that such representation
and warranty was true and correct, such acceptance shall not be valid.
(d) Neither the Offeror nor Morgan Stanley nor any agent nor director of the
Offeror or Morgan Stanley nor any person acting on behalf of any of them
shall have any liability to any person for any loss or alleged loss arising
from any decision as to the treatment of acceptances of the Offer on any of
the bases set out above or otherwise in connection therewith.
(e) If, in connection with the making of the Offer, notwithstanding the
restrictions described above, any person (including, without limitation,
custodians, nominees and trustees), whether pursuant to a contractual or
legal obligation or otherwise, forwards this document, the Form of
Acceptance or any related offering documents in, into or from Canada or uses
the mails of or any means or instrumentality (including, without limitation,
facsimile transmission, telex and telephone) of interstate or foreign
commerce of, or any facility of a securities exchange of Canada in
connection with such forwarding, such person should (i) inform the recipient
of such fact; (ii) explain to the recipient that such action will invalidate
any purported acceptance by the recipient; and (iii) draw the attention of
the recipient to this paragraph 6.
(f) The Offeror and Morgan Stanley reserve the right to notify any matter
including the making of the Offer, to all or any T&N Shareholders:
(i) with a registered address outside the United Kingdom; or
(ii) whom the Offeror knows to be a custodian, trustee or nominee holding
T&N Shares for person who are citizens, residents or nationals of
jurisdiction outside the United Kingdom,
by announcement or by paid advertisement in a daily national newspaper
published and circulated in the United Kingdom (in which event such notice
shall be deemed to have been sufficiently given, notwithstanding any failure
by any such T&N Shareholder to receive or see such notice) and all
references in this document to notice or the provision of information in
writing or on behalf of the Offeror shall be construed accordingly.
(g) The provisions of this paragraph 6 and/or other terms of the Offer relating
to overseas T&N Shareholders may be waived, varied or modified as regards
specific T&N Shareholders or on a general basis by the Offeror in its
absolute discretion. References in this paragraph 6 to a T&N Shareholder
shall include references to the person or persons executing a Form of
Acceptance and, in the event of more than one person executing a Form
Acceptance, the provisions of this paragraph 6 shall apply to them jointly
and severally.
(h) The provisions of this paragraph 6 supersede any terms of the Offer
inconsistent therewith.
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PART C--FORM OF ACCEPTANCE
Each T&N Shareholder by whom, or on whose behalf, a Form of Acceptance is
executed and delivered to the Receiving Agent, the Offeror or its agent
irrevocably undertakes, represents, warrants and agrees to and with the Offeror,
Morgan Stanley and the Receiving Agent (so as to bind him/her, his/her personal
representatives, his/her heirs, successors and assigns) to the following effect:
(a) that the execution of the Form of Acceptance shall constitute:
(i) an acceptance of the Offer in respect of the number of T&N Ordinary
Shares inserted or deemed to be inserted in Box 1 of the Form of
Acceptance; and
(ii) an undertaking to execute any further documents, take any further
action and give any further assurances which may be required to enable
the Offeror to obtain the full benefit of the terms of this Part C
and/or to perfect any of the authorities expressed to be given
hereunder,
in each case on and subject to the terms and conditions set out or referred
to in this document and the Form of Acceptance and that, subject only to the
person accepting the Offer not having validly withdrawn his acceptance, each
such acceptance shall be irrevocable;
(b) that:
(i) unless "YES" is inserted in Box 5 of the Form of Acceptance:
(1) such T&N Shareholder has not received or sent copies of this
document, the Form of Acceptance or any related offering documents
in, into or from Canada;
(2) such T&N Shareholder has not otherwise utilised in connection with
the Offer or the execution or delivery of the Form of Acceptance,
directly or indirectly, the mails of, or any means or instrumentality
(including, without limitation, the post, facsimile transmission,
telex and telephone) of interstate or foreign commerce, or any
facilities of a securities exchange, of Canada;
(3) such T&N Shareholder was outside Canada when the Form of Acceptance
was delivered and at the time of accepting the Offer;
(4) such T&N Shareholder is not a resident of Canada nor a holder whose
registered address is in Canada and does not hold T&N Ordinary Shares
on behalf of any such person;
(5) such T&N Shareholder is not an agent or fiduciary acting on a
non-discretionary basis for a principal, unless such agent or
fiduciary is an authorised employee of such principal or such
principal has given any instructions with respect to the Offer from
outside Canada; and
(6) the Form of Acceptance has not been mailed or otherwise sent in, into
or from Canada; and
(ii) if such accepting T&N Shareholder is not resident in the United
Kingdom he/she has observed the laws of all relevant territories,
obtained any requisite governmental or other consents, complied with
all requisite formalities and paid any issue, transfer or other taxes
due from him/her, in connection with such acceptance, in any
territory and that he/she has not taken or omitted to take any action
which will or may result in the Offeror, Morgan Stanley or any other
person acting in breach of the legal or regulatory requirements of
any territory in connection with the Offer or his/her acceptance
thereof;
(c) that the execution of the Form of Acceptance and such delivery will
constitute, subject to the person accepting the Offer not having validly
withdrawn his acceptance in accordance with paragraph 3 of Part B of this
Appendix, the irrevocable separate appointment of any director of the
Offeror or Morgan Stanley as such T&N Shareholder's attorney and/or agent
within the terms of paragraph 4 of Part B above and this Part C and with the
authority to complete and execute any further documents and give any further
assurances which may be required in connection with any of the foregoing and
an irrevocable undertaking with such attorney and/or agent to execute any
such further documents and/or give any such further assurances as maybe
required;
(d) that the execution of the Form of Acceptance and such delivery constitutes,
subject to the Offer becoming unconditional in all respects in accordance
with its terms and to the person accepting the Offer not having validly
withdrawn his acceptance in accordance with paragraph 3 of Part B of this
Appendix, the irrevocable separate appointment of any director of the
Offeror or Morgan Stanley as such T&N Shareholder's attorney and/or agent
("attorney"), and an irrevocable instruction to the attorney to complete and
execute all or any form(s) of transfer and/or other document(s) at the
discretion of the attorney and/or agent in relation to the T&N Ordinary
Shares to which the Form of Acceptance relates in favour of the Offeror or
such other person or persons as the Offeror or its agents may direct and to
deliver all such documents together with the certificate(s) and/or other
documents of title relating to T&N Ordinary Shares for registration within
six months of the Offer becoming unconditional in all respects and to
execute all such other documents and to do all such other acts and things as
may, in the opinion of
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the attorney, be necessary or expedient for the purposes of, or in
connection with, the acceptance of the Offer and to vest in the Offeror or
its nominee(s) such T&N Ordinary Shares;
(e) that the execution of the Form of Acceptance and such delivery constitutes,
subject to the Offer becoming unconditional in all respects and to an
accepting T&N Shareholder not having validly withdrawn his acceptance, an
irrevocable authority and request (subject to paragraph 6 of Part B):
(i) to T&N or its agents to procure the registration of the transfer of the
T&N Ordinary Shares in certificated form pursuant to the Offer and the
delivery of the share certificates and/or other documents of title in
respect thereof to the Offeror or as it may direct;
(ii) if the T&N Ordinary Shares concerned are in certificated form, or if
the proviso to sub-paragraph (iii)(aa) below applies, to the Offeror
and Morgan Stanley or their respective agents to procure the despatch
by post (or such other method as may be approved by the Panel) of a
cheque drawn on a branch of a UK clearing bank in respect of any cash
consideration to which such T&N Shareholder is entitled, at the risk of
such T&N Shareholder, to the person or agent whose name and address
outside Canada is set out in Box 6 of the Form of Acceptance or, if
none is set out, to the first-named holder at his registered address
outside Canada; and
(iii) if the T&N Ordinary Shares concerned are in uncertificated form, to the
Offeror and Morgan Stanley or their respective agents to procure the
creation of an assured payment obligation in favour of the T&N
Shareholder's payment bank in accordance with the CREST assured payment
arrangements in respect of any cash consideration to which such
shareholder is entitled provided that (aa) the Offeror may (if, for any
reason, it wishes to do so) determine that all or any part of any such
cash consideration shall be paid by cheque despatched by post, and (bb)
if the T&N Shareholder concerned is a CREST member whose registered
address is in Canada, any cash consideration to which such T&N
Shareholder is entitled shall be paid by cheque despatched by post; and
provided that sub-paragraph (ii) above shall apply to the despatch of
any consideration by post pursuant to this sub-paragraph (iii);
(f) that the Offeror shall be entitled, after the Offer becomes unconditional in
all respects, or if the Offer will become unconditional in all respects or
will lapse, immediately upon the outcome of the resolution in question, in
respect of any T&N Ordinary Shares in respect of which the Offer has been
accepted and not validly withdrawn to direct the exercise of any votes and
any or all other rights and privileges (including the right to requisition
the convening of a general meeting or separate class meeting of T&N); and
that the execution of the Form of Acceptance will constitute an authority to
T&N from such T&N Shareholder to send any notice, circular, warrant or other
document or communication which may be required to be sent to him/her as a
member of T&N in respect of such shares (including any share certificate(s)
or other document(s) of title issued as a result of a conversion of T&N
Ordinary Shares into certificated form) to the Offeror at its registered
office, and the irrevocable appointment of any director of the Offeror or
Morgan Stanley or their respective agents to sign such documents and do such
things as may in the opinion of such attorney seem necessary or desirable in
connection with the exercise of any votes or other rights or privileges
attaching to the T&N Ordinary Shares held by such T&N Shareholder
(including, without limitation, signing any consent to short notice of a
general meeting or separate class meeting as his attorney and on his behalf
and/or executing a form of proxy in respect of such T&N Ordinary Shares
appointing any person nominated by the Offeror to attend general meetings
and separate class meetings of T&N and attending any such meeting and
exercising the votes attaching to such T&N Ordinary Shares on his behalf,
where relevant, such votes to be cast so far as possible to satisfy any
outstanding condition of the Offer) and will also constitute the agreement
of such T&N Shareholder not to exercise any of such rights without the
consent of the Offeror and the irrevocable undertaking of such T&N
Shareholder not to appoint a proxy for or to attend any such general or
separate class meeting. This authority will cease to be valid if the
acceptance is withdrawn in accordance with paragraph 3 of Part B of this
Appendix I;
(g) that he/she will deliver, or procure the delivery to the Receiving Agent of
his/her share certificate(s) and/or other document(s) of title in respect of
all T&N Ordinary Shares in respect of which the Offer has been accepted or
is deemed to have been accepted and not validly withdrawn held by him/her in
certificated form or an indemnity acceptable to the Offeror in lieu thereof
as soon as possible and in any event within six months of the Offer becoming
unconditional in all respects;
(h) that, the execution of the Form of Acceptance and such delivery constitutes
the irrevocable appointment of the Receiving Agent as such T&N Shareholder's
attorney and/or agent an irrevocable instruction and authority to the
attorney and/or agent (i) subject to the Offer becoming or being declared
unconditional in all respects in accordance with its terms and to such
accepting T&N Shareholder not having validly withdrawn his acceptance, to
transfer to itself (or to such other persons as the offeror or its agents
may direct) by means of CREST all or any of the Relevant T&N Ordinary Shares
(as defined below) (but not exceeding the number of T&N Ordinary Shares in
respect of which the Offer is accepted or deemed to be accepted), and (ii)
if the Offer does not become unconditional in all respects, to give
instructions to CRESTCo, immediately after the lapsing of the Offer (or
within such longer period as the Panel may permit, not exceeding 14 days of
the lapsing of the Offer), to transfer
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all Relevant T&N Ordinary Shares to the original available balance of the
accepting T&N Shareholders. "Relevant T&N Ordinary Shares" means T&N
Ordinary Shares in uncertificated form and in respect of which a transfer or
transfers to escrow has or have been effected pursuant to the procedures
described in paragraph 10(d) of the letter from Morgan Stanley contained in
this document and where the transfer(s) to escrow was or were made in
respect of T&N Ordinary Shares held under the same member account ID and
participant ID as the member account ID and participant ID relating to the
Form of Acceptance concerned (but irrespective of whether or not any Form of
Acceptance Reference Number, or a Form of Acceptance Reference Number
corresponding to that appearing on the Form of Acceptance concerned, was
included in the TTE instruction concerned);
(i) that he/she will take (or procure to be taken) the action set out in
paragraph 10(d) of the letter from Morgan Stanley contained in this document
to transfer all T&N Ordinary Shares in respect of which the Offer has been
accepted or is deemed to have been accepted and not validly withdrawn held
by him/her in uncertificated form to an escrow balance as soon as possible
and in any event so that the transfer to escrow settles within six months of
the Offer becoming unconditional in all respects;
(j) that, if for any reason, any T&N Ordinary Shares in respect of which a
transfer to an escrow balance has been effected in accordance with paragraph
10(d) of the letter from Morgan Stanley contained in this document are
converted to certificated form, he/share will (without prejudice to
paragraph (f) of this Part C), immediately deliver or procure the immediate
delivery of the share certificate(s) or other document(s) of title in
respect of all such T&N Ordinary Shares as so converted to the Receiving
Agent at The Royal Bank of Scotland plc, Registrars Department, New Issues
Section, PO Box 859, Consort House, East Street, Bedminster, Bristol BS99
1XZ or The Royal Bank of Scotland plc, Registrars Department, New Issues
Section, PO Box 633, 5-10 Great Tower Street, London EC3R 5ER or as the
Offeror or its agents may direct;
(k) that he/she will do all such acts and things as shall, in the opinion of the
Offeror or its agents, be necessary or expedient to vest in the Offeror or
its nominee(s) or such other person as the Offeror may decide the T&N
Ordinary Shares in respect of which the Offer has been accepted or is deemed
to have been accepted and all such acts and things as may be necessary or
expedient to enable the Receiving Agent to perform its function as Escrow
Agent for the purposes of the Offer;
(l) that he/she agrees to ratify each and every act or thing which may be done
or effected by the Offeror or Morgan Stanley or any of their respective
directors or agents or T&N or any of its directors or agents, as the case
may be, in exercise of any of the powers and/or appointments and/or
authorities thereunder;
(m) that, if any provisions of Part B of this Appendix or this Part C shall be
unenforceable or invalid or shall not operate so as to afford the Offeror or
Morgan Stanley the benefit of the authority expressed to be given therein or
herein, he/she shall, with all practicable speed, do all such acts and
things and execute all such documents that may be required or desirable to
enable the Offeror and/or Morgan Stanley or any of their respective
directors to secure the full benefit of Part B of this Appendix and this
Part C;
(n) that the creation of an assured payment obligation in favour of his/her
payment bank in accordance with the CREST assured payments arrangements as
referred to in paragraph (e)(iii) of this Part C shall, to the extent of the
obligation so created, discharge in full any obligation of the Offeror
and/or Morgan Stanley to pay him/her the cash consideration to which he/she
is entitled pursuant to the Offeror;
(o) that the T&N Ordinary Shares in respect of which the Offer is accepted or
deemed to be accepted are sold free from all liens, charges, equities,
encumbrances, rights of pre-emption and other third party rights or
interests of any nature whatsoever and together with all rights now or
hereafter attaching thereto including voting rights and the right to receive
all dividends and other distributions (if any) declared, paid or made after
16 October 1997 other than the right to receive and retain the second
interim dividend of 3.2 pence (net) per T&N Ordinary Share payable on 14
November 1997, or the scrip alternative to such dividend, and the T&N
Dividend of 3 pence (net) per T&N Ordinary Share payable on 30 January 1998;
(p) that the terms and conditions of the Offer contained in this document are
deemed to be incorporated in, and form part of, the Form of Acceptance which
shall be read and construed accordingly;
(q) that, on execution, the Form of Acceptance shall take effect as a deed; and
(r) that the execution of the Form of Acceptance constitutes his/her submission,
in relation to all matters arising out of the Offer and the Form of
Acceptance, to the jurisdiction of the courts of England.
References in this Part C to a T&N Shareholder shall include references to the
person or persons executing the Form of Acceptance and, in the event of more
than one person executing a Form of Acceptance, the provisions of this Part C
shall apply to them jointly and to each of them.
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APPENDIX II
FINANCIAL INFORMATION ON FEDERAL-MOGUL
The financial information contained in this Appendix II is extracted from the
Form 10-K/A of Federal-Mogul filed with the US Securities and Exchange
Commission containing the audited consolidated financial statements for the
years ended 31 December 1994, 1995 and 1996 and the Form 10-Q of Federal-Mogul
filed with the US Securities and Exchange Commission containing the unaudited
quarterly report for the period ended 30 September 1997.
1. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
(AS RESTATED)
-------------------------------
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
Net sales $ 2,032.7 $ 1,999.8 $ 1,889.5
Cost of products sold 1,660.5 1,602.2 1,507.6
--------- --------- ---------
Gross Margin 372.2 397.6 381.9
Selling, general and administrative expenses (333.8) (299.3) (268.8)
Gain on sales of businesses -- 24.0 --
Restructuring charges (57.6) (26.9) --
Re-engineering and other related charges (11.4) (13.9) --
Adjustment of assets held for sale to fair value (151.3) (51.8) --
Interest expense (42.6) (37.3) (21.2)
Interest income 2.9 9.6 7.6
International currency exchange losses (3.7) (2.9) (5.5)
Other expenses, net (3.4) (2.4) (2.5)
--------- --------- ---------
Earnings (loss) before income taxes (228.7) (3.3) 91.5
Income tax expense (benefit) (22.4) 2.5 31.8
--------- --------- ---------
Net Earnings (loss) (206.3) (5.8) 59.7
========= ========= =========
Preferred dividends 8.7 8.9 9.0
Net Earnings (loss) Available to Common Shareholders $ (215.0) $ (14.7) $ 50.7
EARNINGS (LOSS) PER COMMON (AND EQUIVALENT SHARE)
Primary $ (6.12) $ (0.42) $ 1.45
--------- --------- ---------
Fully Diluted $ (6.12) $ (0.42) $ 1.36
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
34
36
2. CONSOLIDATED BALANCE SHEETS
DECEMBER 31
-----------------------
(AS
RESTATED)
1996 1995
--------- ------------
(MILLIONS OF DOLLARS)
ASSETS
Cash and equivalents $ 33.1 $ 19.4
Accounts receivable 231.3 293.4
Inventories 417.0 505.8
Prepaid expenses and income tax benefits 81.5 62.8
--------- -----------
Total current assets 762.9 881.4
Property, plant and equipment 350.3 434.7
Goodwill 154.0 226.5
Other intangible assets 63.1 66.6
Business investments and other assets 124.9 100.9
--------- -----------
Total Assets $ 1,455.2 $ 1,710.1
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $ 280.1 $ 111.9
Accounts payable 142.7 172.7
Accrued compensation 37.6 32.3
Restructuring reserves 55.2 10.7
Other accrued liabilities 148.2 92.6
--------- -----------
Total current liabilities 663.8 420.2
Long-term debt 209.6 481.5
Postemployment benefits 207.1 211.5
Other accrued liabilities 56.2 46.6
--------- -----------
Total Liabilities 1,136.7 1,159.8
Series D preferred stock 76.6 76.6
Series C ESOP preferred stock 53.1 56.8
Unearned ESOP compensation (28.4) (34.3)
Common stock 175.7 175.2
Additional paid-in capital 283.5 280.8
Retained earnings (deficit) (193.0) 40.2
Currency translation and other (49.0) (45.0)
--------- -----------
Total Shareholders' Equity 318.5 550.3
--------- -----------
Total Liabilities and Shareholders' Equity $ 1,455.2 $ 1,710.1
========= ===========
See accompanying Notes to Consolidated Financial Statements.
35
37
3. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
(AS RESTATED)
-------------------------------
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES
Net earnings (loss) $ (206.3) $ (5.8) $ 59.7
Adjustments to reconcile net earnings (loss) to net cash provided from (used
by) operating activities:
Depreciation and amortization 63.7 61.0 55.7
Gain on sale of businesses -- (24.0) --
Restructuring charges 57.6 26.9 --
Re-engineering and other related charges 11.4 13.9 --
Adjustment of assets held for sale to fair value 151.3 51.8 --
Deferred income taxes (27.8) (16.2) 4.1
Postemployment benefits (2.0) 1.8 4.9
Decrease (increase) in accounts receivable 46.5 (5.0) (55.3)
Decrease (increase) in inventories 54.5 (103.9) (33.5)
Increase (decrease) in accounts payable (25.5) 7.2 --
Payments against restructuring and re-engineering reserves (17.6) (19.4) (14.0)
Increase (decrease) in current liabilities and other 43.2 (23.0) 2.7
--------- --------- ---------
Net Cash Provided from (Used by) Operating Activities 149.0 (34.7) 24.3
CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES
Expenditures for property, plant and equipment and other long-term assets (54.2) (78.5) (74.9)
Acquisitions of businesses (.3) (72.1) (58.3)
Payments for rationalization of acquired businesses -- (7.3) (24.5)
Proceeds from sales of businesses 42.0 48.5 --
Other -- -- (.8)
--------- --------- ---------
Net Cash Used by Investing Activities (12.5) (109.4) (158.5)
CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES
Issuance of common stock 0.6 0.2 196.8
Repurchase of common stock -- (9.0) (10.6)
Proceeds from issuance of long-term debt -- 166.2 157.8
Principal payments on long-term debt (29.4) (24.9) (203.7)
Increase (decrease) in short-term debt (61.4) 33.7 14.8
Dividends (26.9) (27.3) (27.7)
Other (5.7) (.4) (2.0)
--------- --------- ---------
Net Cash Provided from (Used by) Financing Activities (122.8) 138.5 125.4
--------- --------- ---------
Increase (Decrease) in Cash and Equivalents 13.7 (5.6) (8.8)
Cash and equivalents at beginning of year 19.4 25.0 33.8
--------- --------- ---------
Cash and Equivalents at end of Year $ 33.1 $ 19.4 $ 25.0
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
36
38
4. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SERIES C
SERIES D ESOP UNEARNED ADDITIONAL RETAINED
PREFERRED PREFERRED ESOP COMMON PAID-IN EARNINGS
STOCK STOCK COMPENSATION STOCK CAPITAL (DEFICIT)
----------- ----------- ------------ -------- ---------- -----------
(MILLIONS OF DOLLARS)
BALANCE AT JANUARY 1, 1994
(as originally reported) $76.6 $60.2 $(44.6) $147.5 $117.2 $46.4
Cumulative effect of restatement
(see Note xviii) (5.1)
----- ----- ------ ------ ------ -----
BALANCE AT JANUARY 1, 1994
(as restated) $76.6 $60.2 $(44.6) $147.5 $117.2 $41.3
Net earnings (as
restated) 59.7
Issuance of common stock 28.8 162.5
Exercise of stock options 1.6 6.1
Repurchase of common stock (3.0) (9.6)
Retirement of preferred stock (1.1)
Amortization of unearned ESOP compensation 4.8
Dividends (27.7)
Preferred dividend tax benefits 1.6
Currency translation
Pension adjustment
----- ----- ------ ------ ------ -----
BALANCE AT DECEMBER 31, 1994 76.6 59.1 (39.8) 174.9 277.8 73.3
Net loss (as
restated) (5.8)
Net issuance of restricted shares 2.2 6.5
Exercise of stock options .2
Repurchase of common stock (1.9) (5.3)
Retirement of preferred stock (2.3)
Amortization of unearned ESOP compensation 5.5
Dividends (27.3)
Preferred dividend tax benefits 1.6
Currency translation
Pension adjustment
----- ----- ------ ------ ------ -----
BALANCE AT DECEMBER 31, 1995 76.6 56.8 (34.3) 175.2 280.8 40.2
Net loss (as restated) (206.3)
Net issuance of restricted shares .3 .9
Exercise of stock options .2 .4
Retirement of preferred stock (3.7)
Amortization of unearned ESOP compensation 5.9
Dividends (26.9)
Preferred dividend tax benefits 1.4
Currency translation effect on assets held
for sale
Currency translation
Pension adjustment
----- ----- ------ ------ ------ -------
BALANCE AT DECEMBER 31, 1996 $76.6 $53.1 $(28.4) $175.7 $283.5 $(193.0)
===== ===== ====== ====== ====== =======
CURRENCY
TRANSLATION
AND OTHER TOTAL
------------- ---------
BALANCE AT JANUARY 1, 1994
(as originally reported) $ (32.2) $ 371.1
Cumulative effect of restatement
(see Note xviii) (5.1)
------ ---------
BALANCE AT JANUARY 1, 1994
(as restated) $ (32.2) $ 366.0
Net earnings (as restated) 59.7
Issuance of common stock 191.3
Exercise of stock options 7.7
Repurchase of common stock (12.6)
Retirement of preferred stock (1.1)
Amortization of unearned ESOP compensation .2 5.0
Dividends (27.7)
Preferred dividend tax benefits 1.6
Currency translation (6.3) (6.3)
Pension adjustment 4.9 4.9
------ ---------
BALANCE AT DECEMBER 31, 1994 (33.4) 588.5
Net loss (as restated) (5.8)
Net issuance of restricted shares (7.7) 1.0
Exercise of stock options .2
Repurchase of common stock (7.2)
Retirement of preferred stock (2.3)
Amortization of unearned ESOP compensation 5.5
Dividends (27.3)
Preferred dividend tax benefits 1.6
Currency translation (1.5) (1.5)
Pension adjustment (2.4) (2.4)
------ ---------
BALANCE AT DECEMBER 31, 1995 (45.0) 550.3
Net loss (as restated) (206.3)
Net issuance of restricted shares (1.2) --
Exercise of stock options .6
Retirement of preferred stock (3.7)
Amortization of unearned ESOP compensation 5.9
Dividends (26.9)
Preferred dividend tax benefits 1.4
Currency translation effect on assets held
for sale 20.1 20.1
Currency translation (24.4) (24.4)
Pension adjustment 1.5 1.5
--------- ---------
BALANCE AT DECEMBER 31, 1996 $(49.0) $318.5
========= =========
See accompanying Notes to Consolidated Financial Statements.
37
39
5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(I) ACCOUNTING POLICIES
Organization--Federal-Mogul's core business is providing value-added
services for the global manufacture and distribution of non-discretionary
parts to vehicular and industrial original equipment manufacturers and the
vehicular replacement market.
Principles of Consolidation--The consolidated financial statements include
the accounts of Federal-Mogul and its majority-owned subsidiaries (the
"company"). Intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Equivalents--The company considers all highly liquid investments
with maturities of 90 days or less from the date of purchase to be cash
equivalents.
Inventories--Inventories are stated at the lower of cost or market. Cost
determined by the last-in, first-out (LIFO) method was used for 54% and 52%
of the inventory at December 31, 1996 and 1995, respectively. The remaining
inventories are costed using the first-in, first-out (FIFO) method. If
inventories had been valued at current cost, amounts reported at December 31
would have been increased by $49.4 million in 1996 and $54.2 million in
1995.
At December 31, inventories consisted of the following:
1996 1995
--------- ---------
(MILLIONS OF
DOLLARS)
Finished products $ 417.0 $ 468.3
Work-in-process 28.0 34.1
Raw materials 20.0 28.6
--------- ---------
465.0 531.0
Reserve for inventory valuation (48.0) (25.2)
--------- ---------
$ 417.0 $ 505.8
========= =========
Inventory quantity reductions resulting in liquidations of certain LIFO
inventory layers and the reduction in international locations using the LIFO
method increased net earnings by $3.1 million and $1.6 million ($.09 and
$.04 per share) in 1996 and 1994, respectively. There was no effect on
operations for 1995.
The company provides inventory valuation reserves for parts on hand which
exceed anticipated demand and assesses these reserves on a quarterly basis.
Goodwill and Other Intangible Assets--Intangible assets, which result
principally from acquisitions, consist of goodwill, trademarks and
non-compete agreements, patents and other intangibles. Intangible assets are
periodically reviewed for impairment based on an assessment of future cash
flows, or fair value for assets held for sale, to ensure that they are
appropriately valued. Intangible assets are amortized on a straight-line
basis over their estimated useful lives, generally ranging from 7 to 40
years. Goodwill and other intangible assets reflected in the consolidated
balance sheets are net of accumulated amortization of $18.7 million and
$14.2 million for goodwill and $22.1 million and $16.9 million for other
intangible assets at December 31, 1996 and 1995, respectively. Impairment
charges recorded in 1996 and 1995 related solely to assets held for sale.
Management believes that the remaining intangible assets, which relate only
to the core manufacturing and distribution businesses, are not impaired, and
the remaining amortization period is appropriate.
Revenue Recognition--The company recognizes revenue and returns from product
sales and the related customer incentive and warranty expense when goods are
shipped to the customer.
Currency Translation--Exchange adjustments related to international currency
transactions and translation adjustments for subsidiaries whose functional
currency is the United States dollar (principally those located in highly
inflationary economies) are reflected in the consolidated statements of
operations. Translation adjustments of international subsidiaries for which
the local currency is the functional currency are reflected in the
consolidated financial statements as a separate component of shareholders'
equity.
Earnings Per Share--The computation of primary earnings per share is based
on the weighted average number of outstanding common shares during the
period and, when their effect is dilutive, common stock equivalents
consisting of certain shares subject to stock options. Fully-diluted
earnings per share additionally assumes, when the effect is dilutive, the
conversion of outstanding Series C Employee Stock Ownership Plan (ESOP)
preferred stock (Note (xi)) and Series D preferred stock and the contingent
issuance of common stock to satisfy the Series C ESOP preferred stock
redemption price guarantee. The number of contingent shares used in the
38
40
fully-diluted calculation is based on the market price of the company's
common stock on December 31, 1996, and the number of preferred shares
held by the ESOP as of December 31 of each of the respective years.
The primary weighted average number of common and equivalent shares
outstanding (in thousands) was 35,105, 34,988 and 35,062 for 1996, 1995
and 1994, respectively. The fully-diluted weighted average number of
common and equivalent shares outstanding (in thousands) was
35,105, 34,988 and 41,812 for 1996, 1995 and 1994, respectively.
Net earnings used in the computation of primary earnings per share are
reduced by preferred stock dividend requirements. Net earnings used in
the computation of fully-diluted earnings per share are reduced by
preferred stock dividend requirements when the effect of conversion is
anti-dilutive and by amounts representing the additional after-tax
contribution that would be necessary to meet ESOP debt service
requirements under an assumed conversion of the Series C ESOP preferred
stock when the effect is dilutive.
Environmental Liabilities--The company recognizes environmental
liabilities when a loss is probable and can be reasonably estimated. Such
liabilities are generally not subject to insurance coverage.
Each environmental obligation is estimated by engineering and legal
specialists within the company based on current law and existing
technologies. Such estimates are based primarily upon the estimated cost
of investigation and remediation required and the likelihood that other
potentially responsible parties will be able to fulfill their commitments
at the sites where the company may be jointly and severally liable with
such parties.
The company periodically evaluates and revises its estimates for
environmental obligations based on expenditures against established
reserves and the availability of additional information.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Reclassifications--Certain items in the prior year financial statements
have been reclassified to conform with the presentation used in 1996.
(II) RESTRUCTURING CHARGES
Results of operations in the fourth quarter of 1996 include a
restructuring charge of $57.6 million. This charge is comprised of $42.8
million for employee severance and $14.8 million for exit costs and
consolidation of certain facilities. The workforce reductions and
consolidation of facilities will be substantially completed in 1997.
The restructuring is designed to aggressively improve the company's cost
structure, streamline operations and divest the company of underperforming
assets. The after-tax cash impact of this charge is approximately $40
million, the majority of which is expected to be paid out during 1997.
Employee severance costs result from the termination of approximately
1,430 employees, primarily in the international retail and wholesale
operations, the North American distribution business, and at a closed
North American manufacturing operation. The severance costs are based on
the minimum levels that will be paid to the affected employees pursuant to
the company's workforce reduction policies and certain foreign
governmental requirements.
Exit and consolidation costs principally include lease termination costs
of international retail stores, and certain international wholesale
operations, the consolidation of certain North American distribution
facilities and the consolidation of a North American manufacturing
operation.
Results of operations in the second and fourth quarters of 1995 include
restructuring charges of $6.1 million and $20.8 million, respectively.
These charges are comprised of $20.1 million for employee severance and
$6.8 million for exit costs and consolidation of certain facilities. The
workforce reductions and consolidation of facilities were completed as of
December 31, 1996.
Employee severance costs for 1995 resulted from the termination of a
total of approximately 750 employees, primarily in Argentina, the United
States and Europe. The amounts paid to terminated employees in 1995 and
1996 approximated the related charges recorded in 1995.
Exit costs for 1995 include efforts to consolidate and restructure
selected operations primarily in the United States. The consolidation
charge includes additional costs for certain replacement market and
related facilities consolidated after the acquisition of SPX Corporation's
Sealed Power Replacement aftermarket business.
39
41
(III) ADJUSTMENT OF ASSETS HELD FOR SALE TO FAIR VALUE
The company continually reviews all components of its businesses for
possible improvement of future profitability through acquisition,
divestiture, reengineering or restructuring. The company adopted Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
effective as of January 1, 1995. This statement addresses the accounting
for the impairment of long-lived assets and long-lived assets to be
disposed of, certain identifiable intangibles and goodwill related to
those assets, and establishes guidance for recognizing and measuring
impairment losses and requires that the carrying amount of impaired assets
be reduced to fair value.
During 1996, management designed and implemented a restructuring plan to
aggressively improve the company's cost structure, streamline operations
and divest the company of underperforming assets. As part of this plan,
the company decided to sell 132 international retail operations, sell or
restructure 30 wholesale international replacement operations and
consolidate a North American manufacturing operation. The company expects
to complete substantially all of these actions in 1997. The carrying value
of the assets held for sale was reduced to fair value based on estimates
of selling values less costs to sell. Selling values used to determine the
fair value of assets held for sale were determined using market prices
(i.e., valuation multiples) of comparable companies from recently
consummated transactions. The carrying value of net assets held for sale
as of December 31, 1996 was $107 million which includes $38 million of
accounts receivable, $88 million of inventory, $29 million of accounts
payable, $1 million of net other current assets and liabilities, and $11
million of noncurrent assets. In accordance with SFAS 121, the carrying
value of long-lived assets held for sale will not be amortized or
depreciated in subsequent periods. The resulting adjustment of $148.5
million to reduce assets held for sale to fair value was recorded in the
fourth quarter of 1996. Net sales for businesses to be disposed of
approximated $234 million, $214 million and $129 million in 1996, 1995 and
1994, respectively.
In 1996, based upon the final sale, the company recorded an additional
writedown of $2.8 million to the net asset value of the United States ball
bearings manufacturing operations. In 1995, the company decided to sell
the ball bearings operations and reduced the carrying value by $17.0
million to record assets held for sale at fair value.
In 1995, the company also decided to sell its heavy-wall bearing
division in Germany and Brazil and certain other non-strategic assets. The
company estimated the fair value of the businesses held for sale based on
discussions with prospective buyers, adjusted for selling costs. The
company reduced its carrying value by $17.0 million to record assets held
for sale at fair value. This division was sold in January 1997 for $10.4
million, which approximated the carrying value of the assets at December
31, 1996.
In addition, in 1995, the company reduced the carrying value of certain
other impaired long-lived assets by $17.8 million to record them at fair
value. No further significant fair value adjustments were recorded for
these assets in 1996.
(IV) REENGINEERING AND OTHER RELATED CHARGES
In 1996, the company initiated an extensive effort to strategically
review its businesses and focus on its competencies of manufacturing,
engineering and distribution. As a result of this process, the company
incurred $11.4 million of pretax charges for professional fees and
personnel costs related to the strategic review of the company, and
changes in management and related costs.
In 1995, the company recorded $13.9 million of pretax charges for
reengineering and other costs. These costs included $7.0 million in
professional fees and personnel costs to reengineer the business on a
company-wide basis and $6.9 million primarily for certain other
non-recurring costs relating to brand consolidation at the customer level
of the company's Federal-Mogul-Registered Trademark-, TRW-Registered
Trademark- and Sealed Power-Registered Trademark- branded engine parts.
(V) CHANGES IN ACCOUNTING ESTIMATES
During the third and fourth quarters of 1996, the company made certain
changes in accounting estimates totaling $51 million ($34 million after
tax, $.97 per share) due to 1996 events and new information becoming
available. The changes in accounting estimates included increasing the
provision for customer incentive programs and related sales initiatives by
$18 million, increasing the provision for excess and obsolete inventory by
$13 million, increasing the provision for bad debts by $3 million,
increasing the provision for environmental and legal matters by $9 million
and increasing various other provisions by approximately $8 million.
(VI) ACQUISITIONS OF BUSINESSES
The company accounted for the following acquisitions as purchases, and
accordingly, the purchase prices have been allocated to the acquired
assets and assumed liabilities based on their estimated fair values as of
the
40
42
acquisition date. The consolidated statements of operations include the
operating results of the acquired businesses from the acquisition dates
unless otherwise stated.
On September 30, 1995, the company completed its acquisition of the
Centropiezas group, a chain of retail stores in Puerto Rico.
Wales-based Seal Technology Systems Limited, a leading designer and
manufacturer of a specialized range of seals and gaskets for the
automotive sector and other industrial markets was purchased September 25,
1995.
The company acquired Bertolotti Pietro e Figli, S.r.l., a distributor of
premium brand European auto and truck parts throughout Italy on June 28,
1995.
On October 31, 1994, the company purchased all the outstanding shares of
Varex Corporation Limited, the largest independent auto parts distributor
in South Africa. The consolidated statements of operations include the
operating results of Varex from July 1, 1994.
(VII) SALES OF BUSINESSES
In November 1996, the company completed the sale of the operations and
substantially all of the assets of its United States ball bearings
manufacturing operations to NTN-U.S.A. Corporation. The company received
$31 million in cash and retained customer receivables while NTN-U.S.A.
Corporation assumed certain liabilities. The results of operations have
been included in the company's consolidated statement of operations
through the date of sale. The company recognized no gain or loss on the
sale. (Refer to Note (iii) for previous writedowns of assets to fair
value.)
In September 1996, the company completed the sale of the assets and
business of its electrical products manufacturing operations to Capsonic
Automotive, Inc. The company received $11 million in cash and retained
customer receivables, while Capsonic Automotive assumed certain
liabilities. The results of operations have been included in the company's
consolidated statement of operations through the date of sale. The company
recognized no gain or loss on the sale.
In December 1995, the company sold its equity interest in Westwind Air
Bearings Limited in England and its affiliated operations in the United
States and Japan for $20.5 million. The company recognized a pre-tax gain
on the sale of $16.2 million.
In April 1995, the company completed the sale of the operations and
substantially all of the assets of its Precision Forged Products Division
to Borg-Warner Automotive, Inc. The company received $28.0 million in cash
and retained customer receivables, while Borg-Warner assumed certain
liabilities. The results of operations have been included in the company's
consolidated statement of operations through the date of sale. The company
recognized a pre-tax gain on the sale of $7.8 million.
(VIII) FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE RISK AND COMMODITY PRICE MANAGEMENT
The company is subject to exposure to market risks from changes in
foreign exchange rates and raw material price fluctuations. Derivative
financial instruments are utilized by the company to reduce those risks.
The company does not hold or issue derivative financial instruments for
trading or speculative purposes.
The company's foreign exchange contracts at December 31 are summarized
below:
1996 1995
---------------------------- ------------------------
CONTRACT DEFERRED GAIN CONTRACT DEFERRED
AMOUNT (LOSS) AMOUNT (LOSS)
----------- --------------- ----------- -----------
(MILLIONS OF DOLLARS)
Forwards $ 6.6 $ -- $ 23.5 $ (.3)
Options Purchased -- -- 8.0 --
----- ----- ------- ------
$ 6.6 $ -- $ 31.5 $ (.3)
===== ===== ======= ======
The company has entered into copper contracts to hedge against the risk of
price increases. These contracts are expected to offset the effects of price
changes on the firm purchase commitments for copper. Under the agreements,
the company is committed to purchase 4.7 million pounds of copper. The net
unrealized gain on these firm purchase commitments at December 31, 1996 is
$.1 million.
Deferred gains and losses are included in other assets and liabilities and
recognized in operations when the future purchase or sale occurs, or at the
point in time when the purchase or sale is no longer expected to occur.
41
43
Concentrations of Credit Risk
Financial instruments which potentially subject the company to
concentrations of credit risk consist primarily of accounts receivable and
cash investments. The company's customer base includes virtually every
significant global automotive manufacturer and a large number of
distributors and installers of automotive replacement parts. However, the
company's credit evaluation process, reasonably short collection terms and
the geographical dispersion of sales transactions help to mitigate any
concentration of credit risk. The company also has cash investment
policies that limit the amount of credit exposure to any one financial
institution and require placement of investments in financial institutions
evaluated as highly creditworthy.
The company does not generally require collateral for its trade accounts
receivable. The allowance for doubtful accounts of $16.3 million and $18.7
million at December 31, 1996 and 1995 is based upon the expected
collectibility of all trade accounts receivable, including those sold.
Fair Value of Financial Instruments
The carrying amounts of certain financial instruments such as cash and
equivalents, accounts receivable, accounts payable, and short-term and
long-term debt approximate their fair values. The fair value of the
long-term debt is estimated using discounted cash flow analysis and the
company's current incremental borrowing rates for similar types of
arrangements.
Accounts Receivable Securitization
On an ongoing basis, the company sells accounts receivables to
Federal-Mogul Funding Corporation, a wholly owned subsidiary, which then
sells such receivables without recourse to a master trust. Amounts sold
under this arrangement were $95.0 million at December 31, 1996 and 1995.
Accounts receivable at both December 31, 1996 and 1995 exclude the $95.0
million.
(IX) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and include
expenditures for additional facilities and those expenditures which
materially extend the useful lives of existing buildings, machinery and
equipment.
Depreciation is computed principally by the straight-line method for
financial reporting purposes and by accelerated methods for income tax
purposes.
At December 31, property, plant and equipment consisted of the following:
ESTIMATED
USEFUL LIFE 1996 1995
----------- --------- ---------
(MILLIONS OF
DOLLARS)
Land -- $ 32.1 $ 35.7
Buildings and building improvements 40 yrs. 144.1 180.8
Machinery and equipment 3-12 yrs. 378.8 442.1
--------- ---------
555.0 658.6
Accumulated depreciation (204.7) (232.0)
--------- ---------
$ 350.3 $ 426.6
========= =========
The company leases various facilities and equipment under both capital
and operating leases. Net assets subject to capital leases were not
significant at December 31, 1996 and 1995.
The balance of the deferred gain resulting from the 1988 sale and
leaseback of a portion of the corporate headquarters complex was $7.8
million at December 31, 1996. The deferred gain is being amortized over
the term of the lease as a reduction of rent expense. Future minimum
payments under noncancelable operating leases with initial or remaining
terms of more than 1 year are, in millions: 1997-$28.1; 1998-$25.8;
1999-$22.1; 2000-$18.2; 2001-$14.3 and thereafter, $60.8. Future minimum
lease payments have been reduced by approximately $31.2 million for
amounts to be received under sublease agreements.
Total rental expense under operating leases was $33.8 million in 1996,
$34.0 million in 1995 and $25.7 million in 1994, exclusive of property
taxes, insurance and other occupancy costs generally payable by the
company.
(X) DEBT
The company's $300 million United States revolving credit facility
matures in June 1998. The company also has a European revolving credit
facility for $50 million. As of December 31, 1996, the company had $185
million
42
44
borrowed against the United States revolver and $9 million borrowed
against the European revolver. The company's United States revolving
credit facility contains restrictive covenants that, among other matters,
require the company to maintain certain financial ratios. The covenants
were amended in 1996 in relation to certain charges recorded in the third
and fourth quarters of 1996. The amendments to the covenants are effective
through March 31, 1997. The company intends to enter into a new
consolidated multi-currency revolving credit facility in the first half of
1997. The revolving credit facility borrowings are included in short-term
debt as of December 31, 1996. Short-term debt also includes international
subsidiaries' local credit arrangements that are maintained in accordance
with local customary practice.
The weighted average interest rate for the company's short-term debt was
7.9% and 9.5% as of December 31, 1996 and 1995, respectively. Excluding
the revolving credit facility which was classified as a current liability
at December 31, 1996 and as a long-term liability at December 31, 1995,
the weighted average interest rate for short-term debt increased to 10.9%
at December 31, 1996 from 9.5% at December 31, 1995. The interest rate on
the revolving credit facility at December 31, 1996 and 1995 was 6.1% and
6.2%, respectively.
Long-term debt at December 31 consists of the following:
1996 1995
--------- ---------
(MILLIONS OF
DOLLARS)
Revolving credit facility $ -- $ 185.0
Medium-term notes 125.0 125.0
Notes payable 64.8 68.1
ESOP obligation 28.0 33.7
European revolving credit facility -- 44.7
Other 17.7 38.1
--------- ---------
235.5 494.6
Less current maturities included in short-term debt 25.9 13.1
--------- ---------
$ 209.6 $ 481.5
========= =========
In August 1994, the company initiated a medium-term note program for up
to $200 million. Notes were issued in maturities ranging from 5 to 10
years. The average interest rate was approximately 8.4%.
In December 1990, the company privately placed $75 million in notes with
insurance companies. The amount outstanding on these notes was $64.8
million as of December 31, 1996. The interest rate on the notes is
approximately 11%. The notes will mature in December 2000. The note
agreements contain restrictive covenants that, among other matters,
require the company to maintain certain financial ratios and a minimum
level of tangible net worth and limit the amount of indebtedness that the
company may incur. The covenants were amended in 1996 in relation to
certain charges recorded in the third and fourth quarters of 1996. The
amendments to the covenants are effective through June 30, 1997. The
company expects to be in compliance with the original covenants by the
expiration of the amendments.
The ESOP obligation represents the unpaid principal balance on an
11-year loan entered into by the company's ESOP in 1989. Proceeds of the
loan were used by the ESOP to purchase the company's Series C ESOP
preferred stock. Payment of principal and interest on the notes is
unconditionally guaranteed by the company, and therefore, the unpaid
principal balance of the borrowing is classified as long-term debt.
Company contributions and dividends on the preferred shares held by the
ESOP are used to meet semi-annual principal and interest obligations.
The original ESOP obligation bore annual interest at the rate of 11.5%.
The obligation was refinanced with on June 30, 1995 at a fixed interest
rate of 7.2%. The ESOP obligation matures in December 2000.
Aggregate maturities of long-term debt for each of the years following
1997 are, in millions: 1998-$28.5; 1999-$48.5; 2000-$45.1; 2001-$45.1; and
thereafter, $42.4.
Interest paid in 1996, 1995 and 1994 was $43.5 million, $37.1 million
and $21.4 million, respectively.
(XI) CAPITAL STOCK AND PREFERRED SHARE PURCHASE RIGHTS
The company's articles of incorporation authorize the issuance of
60,000,000 shares of common stock, of which 35,130,359 shares, 35,044,859
shares and 34,987,810 shares were outstanding at December 31, 1996, 1995
and 1994, respectively. In February 1994, the company sold 5,750,000
shares of its common stock in a public offering which generated net
proceeds of $191.3 million. The proceeds were used to repay bank debt
outstanding, including debt incurred for the acquisition of SPX
Corporation's Sealed Power Replacement aftermarket business.
43
45
The articles of incorporation also authorize the issuance of 5,000,000
shares of preferred stock. At December 31, 1996, 1995 and 1994, 1,600,000
shares of $3.875 Series D Convertible Exchangeable Preferred Stock (Series
D preferred stock) were outstanding. Sold to institutional investors in a
private placement, each share has a liquidation preference of $50 and is
convertible into the company's common stock at a conversion price of $18
per share. The shares are redeemable and may be exchanged at the company's
option for 7.75% convertible subordinated debentures due in 2012. Such
debentures would be convertible into the company's common stock at the
same conversion price as the Series D preferred stock.
The company's ESOP covers substantially all domestic salaried employees
and allocates Series C ESOP Convertible Preferred Stock (Series C ESOP
preferred stock) to eligible employees based on their contributions to the
Salaried Employees' Investment Program and their eligible compensation. At
December 31, 1996, 1995 and 1994, respectively, 835,898 shares, 892,620
shares and 926,136 shares of Series C ESOP preferred stock were
outstanding. The company repurchased and retired 56,722 Series C ESOP
preferred shares valued at $3.6 million during 1996 and 33,516 Series C
ESOP preferred shares valued at $2.1 million during 1995, all of which
were forfeited by participants upon early withdrawal from the plan.
The Series C ESOP preferred stock is convertible into shares of the
company's common stock at a rate of two shares of common stock for each
share of preferred stock. The Series C ESOP preferred stock may be issued
only to a trustee acting on behalf of an employee stock ownership plan or
other employee benefit plan of the company. The shares are automatically
converted into shares of common stock in the event of any transfer to any
person other than the plan trustee. The Series C ESOP preferred stock is
redeemable, in whole or in part, at the option of the company.
The charge to operations for the cost of the ESOP was $4.2 million in
1996, $4.4 million in 1995 and $4.9 million in 1994. The company made cash
contributions to the plan of $8.1 million in 1996, $8.5 million in 1995
and $9.2 million in 1994, including preferred stock dividends of $4.1
million in 1996, $4.3 million in 1995 and $4.5 million in 1994.
ESOP shares are released as principal and interest on the debt is paid.
The ESOP Trust uses the preferred dividends not allocated to employees to
make principal and interest payments on the debt. Compensation expense is
measured based on the fair value of shares committed to be released to
employees. Dividends on ESOP shares are treated as a reduction of retained
earnings in the period declared. The number of allocated shares and
suspense shares held by the ESOP were 504,435 and 331,463 at December 31,
1996, and 486,663 and 403,058 at December 31, 1995, respectively. There
were no committed-to-be-released shares at December 31, 1996 and December
31, 1995. Any repurchase of the ESOP shares is strictly at the option of
the company.
In 1988, the company's Board of Directors authorized the distribution of
one Preferred Share Purchase Right (Right) for each outstanding share of
common stock of the company. Each Right entitles shareholders to buy
one-half of one-hundredth of a share of a new series of preferred stock at
a price of $70.
As distributed, the Rights trade together with the common stock of the
company. They may be exercised or traded separately only after the earlier
to occur of: (i) 10 days following a public announcement that a person or
group of persons has obtained the right to acquire 10% or more of the
outstanding common stock of the company (20% in the case of certain
institutional investors), or (ii) 10 business days (or such later date as
may be determined by action of the Board of Directors) following the
commencement or announcement of an intent to make a tender offer or
exchange offer which would result in beneficial ownership by a person or
group of persons of 10% or more of the company's outstanding common stock.
Additionally, if the company is acquired in a merger or other business
combination, each Right will entitle its holder to purchase, at the
Right's exercise price, shares of the acquiring company's common stock (or
stock of the company if it is the surviving corporation) having a market
value of twice the Right's exercise price.
The Rights may be redeemed at the option of the Board of Directors for
$.005 per Right at any time before a person or group of persons acquires
10% or more of the company's common stock. The Board may amend the Rights
at any time without shareholder approval. The Rights will expire by their
terms on November 14, 1998.
(XII) INCENTIVE STOCK PLANS
The company's shareholders adopted stock option plans in 1976 and 1984
and a performance incentive stock plan in 1989. These plans provide
generally for awarding restricted shares or granting options to purchase
shares of the company's common stock. Restricted shares entitle employees
to all of the rights of holders of common stock, subject to certain
transfer restrictions and to forfeiture in the event that the conditions
for their vesting are not met. Options entitle employees to purchase
shares at an exercise price not less than 100% of the fair market value on
the grant date and expire after 10 years.
44
46
Under the plans, options become exercisable from 6 months to 4 years
after their date of grant, as determined by the Board of Directors at the
time of grant. At December 31, 1996, 284,556 shares were available for
future grants under the plans.
The company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. The exercise
price of the company's employee stock options equals the market price of
the underlying stock on the date of grant, and therefore, no compensation
expense is recognized under APB 25.
The following table summarizes activity relating to the company's
incentive stock plans:
NUMBER WEIGHTED-AVERAGE
OF SHARES PRICE
----------------- -----------------
(IN MILLIONS)
Outstanding at January 1, 1994 2.6 $ 22.02
Options / stock granted .1 36.08
Options exercised (.3) 20.30
Options / stock lapsed or canceled -- --
--
------ ---------
Outstanding at December 31, 1994 2.4 22.98
Options / stock granted .5 18.72
Options exercised -- --
Options / stock lapsed or canceled (.3) 23.69
--
------ ---------
Outstanding at December 31, 1995 2.6 22.02
Options / stock granted .5 22.08
Options exercised -- --
Options / stock lapsed or canceled (.6) 22.32
------ ---------
Outstanding at December 31, 1996 2.5 $ 22.03
====== =========
Options exercisable at December 31, 1996 1.3 $ 22.50
====== =========
Options exercisable at December 31, 1995 1.5 $ 21.50
====== =========
Options exercisable at December 31, 1994 1.2 $ 20.00
====== =========
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based
Compensation" and has been determined as if the company had accounted for
its employee stock options under the fair value method of that statement.
The fair value for these options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates of
6.5% and 6.5%; dividend yields of 2.3% and 2.4%; volatility factors of the
expected market price of the company's common stock of 11.2% and 8.1%; and
a weighted average expected life of the option of 5 years. The effect of
applying Statement No. 123's fair value method to the company's
stock-based awards results in net income and earnings per share that
approximate amounts reported. The weighted-average fair value of options
granted during the years ended December 31, 1996 and 1995 are $2.56 and
$.90, respectively.
(XIII) POST EMPLOYMENT BENEFITS
The company maintains several defined benefit pension plans which cover
substantially all domestic employees and certain employees in other
countries. Benefits for domestic salaried employees are based on
compensation, age and years of service, while hourly employees' benefits
are primarily based on negotiated rates and years of service.
International plans maintained by the company provide benefits based on
years of service and compensation.
The company's funding policy is consistent with funding requirements of
federal and international laws and regulations. Plan assets consist
primarily of listed equity securities and fixed income instruments. As of
December 31, 1996, plan assets included 309,000 shares of the company's
common stock valued at approximately $6.8 million.
45
47
Net periodic pension cost for the company's defined benefit plans in 1996, 1995
and 1994 consists of the following:
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
United States Plans
(Income)/Expense
Service cost--benefits earned during the period $ 9.0 $ 7.3 $ 6.8
Interest cost on projected benefit obligation 15.0 15.0 14.0
Actual return on plan assets (30.8) (51.6) (3.7)
Net amortization and deferral 3.3 28.6 (22.7)
Curtailment loss 3.7 .5 1.1
--------- --------- ---------
Net periodic pension (income) cost $ .2 $ (.2) $ (4.5)
========= ========= =========
International Plans
1996 1995 1994
---- ---- ----
(MILLIONS OF DOLLARS)
(Income)/Expense
Service cost--benefits earned during the period $ .4 $ .4 $ .3
Interest cost on projected benefit obligation 2.5 2.7 2.4
-------- ------- --------
Net periodic pension cost $ 2.9 $ 3.1 $ 2.7
======== ======= ========
The following table sets forth the funded status for the company's defined
benefit plans at December 31:
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
-------------------- ------------------
1996 1995 1996 1995
--------- --------- ------ -------
(MILLIONS OF DOLLARS)
United States Plans
Actuarial present value of benefit obligations:
Vested benefit obligation $ 96.2 $ 95.6 $ 88.8 $ 79.9
========= ========= ========= =========
Accumulated benefit obligation $ 102.1 $ 103.4 $ 106.4 $ 95.4
========= ========= ========= =========
Projected benefit obligation $ 104.0 $ 105.0 $ 107.1 $ 96.0
========= ========= ========= =========
Plan assets at fair value 177.8 173.0 84.8 74.6
--------- --------- --------- ---------
Plan assets in excess of (less than) projected benefit obligation 73.8 68.0 (22.3) (21.4)
Unrecognized net (asset) liability at transition (5.8) (9.1) .5 .8
Unrecognized prior service cost .5 .2 10.0 8.8
Unrecognized net (gain) loss (23.2) (18.3) 3.2 6.4
--------- --------- --------- ---------
Accrued pension asset (liability) included in the consolidated
balance sheets $ 45.3 $ 40.8 $ (8.6) $ (5.4)
========= ========= ========= =========
46
48
ACCUMULATED
BENEFITS
EXCEED ASSETS
------------------------
1996 1995
----------- -----------
(MILLIONS OF DOLLARS)
International Plans
Actuarial present value of benefit obligations:
Vested benefit obligation $ 32.9 $ 35.0
========== ==========
Accumulated benefit obligation $ 34.5 $ 36.6
========== ==========
Projected benefit obligation $ 34.5 $ 36.7
========== ==========
Plan assets less than projected benefit obligation (34.5) (36.7)
Unrecognized net loss 4.0 4.4
---------- ----------
Accrued pension liability included in the consolidated balance sheets $ (30.5) $ (32.3)
========== ==========
The assumptions used in computing the above information are as follows:
1996 1995 1994
----- ----- -----
United States Plans
Discount rates 7 1/2% 7 1/2% 8 1/2%
Rates of increase in compensation levels 4 1/2% 4 1/2% 5 1/2%
Expected long-term rates of return on assets 10% 10% 10%
1996 1995 1994
----- ----- -----
International Plans
Discount rates 7 1/2% 7 1/2% 8 1/2%
Rates of increase in compensation levels 4 1/2% 4 1/2% 4 1/2%
The Company's minimum liability adjustment was $13.4 million and $15.3
million for United States plans at December 31, 1996 and 1995,
respectively, and $3.5 million and $3.9 million for international plans at
December 31, 1996 and 1995, respectively.
The company also provides health care and life insurance benefits for
certain domestic retirees covered under company-sponsored benefit plans.
Participants in these plans may become eligible for these benefits if they
reach normal retirement age while working for the company. The company's
policy is to fund benefit costs as they are provided, with retirees paying
a portion of the costs.
The components of net periodic postretirement benefit costs are as follows
as of December 31:
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
Service cost $ 2.8 $ 2.3 $ 2.8
Interest cost 10.8 10.4 9.0
Curtailment gain (7.5) (1.0) --
Amortized gains (.5) (1.1) --
--------- ------- ------
Net periodic postretirement benefits cost $ 5.6 $ 10.6 $ 11.8
========= ======= ======
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49
The following schedule reconciles the funded status of the company's
postretirement benefit plans to the amounts recorded in the company's
balance sheets as of December 31:
1996 1995
--------- ---------
(MILLIONS OF
DOLLARS)
Accumulated postretirement benefit obligations (APBO):
Retirees $ 103.9 $ 94.3
Active plan participants 46.9 48.7
--------- ---------
150.8 143.0
Unrecognized net gain (loss) (1.4) 7.6
Unrecognized prior service cost 4.1 4.5
--------- ---------
Accrued postretirement benefits liability $ 153.5 $ 155.1
========= =========
The discount rate used in determining the APBO was 7.5% at December 31,
1996 and 1995.
At December 31, 1996, the assumed annual health care cost trend used in
measuring the APBO approximated 7.5% in 1996, declining to 7.1% in 1997
and to an ultimate rate of 5.5% estimated to be achieved in 2008.
At December 31, 1995, the assumed annual health care cost trend used in
measuring the APBO approximated 8% in 1995, declining to 7.5% in 1996 and
to an ultimate annual rate of 5.5% estimated to be achieved in 2008.
Increasing the assumed cost trend rate by 1% each year would have
increased the APBO by approximately 8.4% and 10.9% at December 31, 1996
and 1995, respectively. Aggregate service and interest costs would have
increased by approximately 9.4% for 1996, and 12.9% for 1995 and 1994.
In 1991, the company established a retiree health benefits account (as
defined in Section 401(h) of the Internal Revenue Code) within its
domestic salaried employees' pension plan. Annually through the year 2000,
the company may elect to transfer excess pension plan assets (subject to
defined limitations) to the 401(h) account for purposes of funding current
salaried retiree health care costs. The company transferred excess pension
plan assets of $4.2 million in 1996, $4.2 million in 1995 and $4.0 million
in 1994 to the 401(h) account to fund salaried retiree health care
benefits.
(XIV) INCOME TAXES
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
The components of earnings/(loss) before income taxes consisted of the
following:
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
Domestic $ (88.3) $ 7.9 $ 90.5
International (140.4) (11.2) 1.0
--------- --------- ---------
$ (228.7) $ (3.3) $ 91.5
========= ========= =========
48
50
Significant components of the provision for income taxes/(tax benefit) are
as follows:
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
Current:
Federal $ (4.0) $ 12.7 $ 15.4
State and local 2.3 1.2 2.1
International 6.3 9.3 5.2
--------- --------- ---------
Total current 4.6 23.2 22.7
Deferred:
Federal (25.2) (9.0) 14.7
State and local (1.8) (.9) .8
International (10.8) (6.4)
--------- --------- ---------
Total deferred (27.0) (20.7) 9.1
--------- --------- ---------
$ (22.4) $ 2.5 $ 31.8
========= ========= =========
The reconciliation of income taxes/(tax benefits) computed at the United
States federal statutory tax rate to income tax expense/(benefit) is:
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
Income taxes (tax benefits) at United States statutory rate $ (80.1) $ (1.1) $ 32.0
Tax effect from:
Tax credits, state income taxes and other 1.8 (2.3) (2.4)
Losses on international operations without tax benefits and foreign
tax rate differences 55.9 5.9 2.2
--------- --------- ---------
$ (22.4) $ 2.5 $ 31.8
========= ========= =========
The following table summarizes the company's total provision for income
taxes/(tax benefits):
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
Income tax expense (benefit) $ (22.4) $ 2.5 $ 31.8
Allocated to equity:
Currency translation (4.9) 5.3 3.6
Preferred dividends (1.5) (1.6) (1.6)
Investment securities .8 -- --
Other .7 .8 .6
--------- --------- ---------
$ (27.3) $ 7.0 $ 34.4
========= ========= =========
49
51
Significant components of the company's deferred tax assets and
liabilities as of December 31 are as follows:
1996 1995
--------- ---------
(MILLIONS OF
DOLLARS)
Deferred tax assets:
Postretirement benefits $ 57.2 $ 58.5
Net operating loss carryforwards of international subsidiaries 68.1 56.0
Loss on foreign investment 49.0 --
Restructuring costs 8.3 --
Inventory basis 12.0 5.3
Allowance for doubtful accounts 7.0 4.2
Other temporary differences 27.6 16.2
--------- ---------
Total deferred tax assets 229.2 140.2
Valuation allowance for deferred tax assets (89.4) (23.7)
--------- ---------
Net deferred tax assets 139.8 116.5
Deferred tax liabilities:
Fixed asset basis differences (55.0) (62.3)
Pension (12.4) (10.9)
Restructuring costs -- (2.8)
--------- ---------
Total deferred tax liabilities (67.4) (76.0)
--------- ---------
$ 72.4 $ 40.5
========= =========
Deferred tax assets and liabilities are recorded in the consolidated balance
sheets as follows:
1996 1995
----------- -----------
(MILLIONS OF DOLLARS)
Assets:
Prepaid expenses and income tax benefits $ 54.6 $ 34.9
Business investments and other assets 21.9 6.2
Liabilities:
Other current accrued liabilities (3.6) --
Other long-term accrued liabilities (.5) (.6)
-------- -------
$ 72.4 $ 40.5
======== =======
Income taxes paid in 1996, 1995 and 1994 were $6.7 million, $19.4
million and $20.0 million, respectively.
Undistributed earnings of the company's international subsidiaries
amounted to approximately $23 million at December 31, 1996. No taxes have
been provided on approximately $19 million of these earnings, which are
considered by the company to be permanently reinvested. Upon distribution
of these earnings, the company would be subject to United States income
taxes and foreign withholding taxes. Determining the unrecognized deferred
tax liability on the distribution of these earnings is not practicable as
such liability, if any, is dependent on circumstances existing when
remittance occurs.
The company has a $92.0 million German net operating loss carryforward
at December 31, 1996 that has no expiration date. The company has $76.0
million of additional foreign operating losses with various expiration
dates through 2002.
(XV) OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The company is a global manufacturer and distributor of a broad range of
non-discretionary parts, primarily vehicular components for automobiles,
light trucks, heavy duty trucks and farm and construction vehicles and
industrial products. The company sells parts to original equipment
manufacturers, principally the major automotive manufacturers in the
United States and Europe. Through its worldwide distribution network, the
company sells replacement parts in the vehicular replacement market. All
of these activities constitute a single business segment. Canadian
operations are aggregated with the U.S. operations as they are not
significant under the materiality thresholds of SFAS 14.
50
52
Financial information, summarized by geographic area, is as follows:
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
Net sales:
United States and Canada $ 1,224.7 $ 1,280.6 $ 1,334.5
Europe 436.0 382.8 285.3
Other international 372.0 336.4 269.7
--------- --------- ---------
$ 2,032.7 $ 1,999.8 $ 1,889.5
========= ========= =========
Operating earnings (loss):
United States and Canada $ (53.2) $ 57.5 $ 119.6
Europe 11.8 (13.2) (5.0)
Other international (112.8) 13.2 25.1
--------- --------- ---------
(154.2) 57.5 139.7
Corporate expenses and other (27.7) (27.8) (26.6)
--------- --------- ---------
Operating earnings (loss) $ (181.9) $ 29.7 $ 113.1
========= ========= =========
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
Identifiable assets:
United States and Canada $ 775.5 $ 877.9 $ 885.5
Europe 451.0 493.9 342.5
Other international 228.7 322.7 253.7
--------- --------- ---------
$ 1,455.2 $ 1,710.1 $ 1,481.7
========= ========= =========
Transfers between geographic areas are not significant, and when made,
are recorded at prices comparable to normal unaffiliated customer sales.
(XVI) LITIGATION AND ENVIRONMENTAL MATTERS
The company is one of a large number of defendants in a number of
lawsuits brought by claimants alleging injury due to exposure to asbestos.
The company is defending all such claims vigorously and believes that it
has substantial defenses to liability and adequate insurance coverage for
its defense costs. The company is also involved in various other legal
actions and claims. While the outcome of litigation cannot be predicted
with certainty, after consulting with the company's legal department,
management believes that these matters will not have a material effect on
the company's consolidated financial statements.
The company is a party to lawsuits filed in various jurisdictions
alleging claims pursuant to the Comprehensive Environmental Response
Compensation and Liability Act of 1980 (CERCLA) or other state or federal
environmental laws. In addition, the company has been notified by the
Environmental Protection Agency and various state agencies that it may be
a potentially responsible party (PRP) for the cost of cleaning up certain
other hazardous waste storage or disposal facilities pursuant to CERCLA
and other federal and state environmental laws. PRP designation requires
the funding of site investigations and subsequent remedial activities.
Although these laws could impose joint and several liability upon each
party at any site, the potential exposure is expected to be limited
because at all sites other companies, generally including many large,
solvent public companies, have been named as PRPs. In addition, the
company has identified certain present and former properties at which it
may be responsible for cleaning up environmental contamination. The
company is actively seeking to resolve these matters. Although difficult
to quantify based on the complexity of the issues, the company has accrued
the estimated cost associated with such matters based upon current
available information from site investigations and consultants. Management
believes that these accruals, which have not been reduced by any
anticipated insurance proceeds, will be adequate to cover the company's
estimated liability for these exposures.
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53
(XVII) QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD(1) FOURTH(2) YEAR
--------- --------- ----------- ----------- ---------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Year ended December 31, 1996:
Net sales $ 522.9 $ 536.6 $ 492.4 $ 480.8 $2,032.7
Gross margin 113.2 117.5 83.2 58.3 372.2
Net earnings (loss) 11.2 15.9 (12.6) (220.8) (206.3)
Fully diluted earnings (loss) per share .25 .36 (.41) (6.34) (6.12)
FIRST SECOND THIRD(1) FOURTH(2) YEAR
--------- --------- ----------- ----------- ---------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Year ended December 31, 1995:
Net sales $ 526.0 $ 506.7 $ 481.3 $ 485.8 $1,999.8
Gross margin 106.1 105.3 89.1 97.1 397.6
Net earnings (loss) 14.6 13.9 10.6 (44.9) (5.8)
Fully diluted earnings (loss) per share .34 .32 .24 (1.32) (.42)
(1) Net loss includes a pretax charge of $38.5 million primarily relating to
changes in estimates, adjustment of assets held for sale to fair value
and other related charges.
(2) Net loss includes a pretax charge for restructuring of $57.6 million,
adjustment of assets held for sale to fair value of $144.9 million and
$61.7 million primarily relating to changes in estimates, and other
related charges.
(3) Net earnings includes pretax charges for restructuring of $6.1 million
and reengineering and other charges of $1.7 million.
(4) Net loss includes pretax charges for restructuring of $20.8 million,
reengineering and other charges of $12.2 million and an adjustment of
assets held for sale to fair value of $51.8 million.
(5) The restated quarterly net earnings (loss) were greater (less) than
amounts previously reported by $.6 million, $.1 million, $4.7 million,
$(.6) million and $.4 million, $(.3) million, $(.4) million, and $4.2
million for the first, second, third and fourth quarters of 1996 and
1995, respectively. The restated earnings (loss) per share on a fully
diluted basis were greater (less) than amounts previously reported $.02,
no effect, $.15, $(.02), and $.01, $(.01), $(.01), $.12, for the first,
second, third and fourth quarters of 1996 and 1995, respectively. See
Note (xviii) Restatement.
(XVIII) RESTATEMENT
The company has restated the previously issued 1996, 1995 and 1994 financial
statements for certain charges recorded in 1996. The restatement does not
affect the company's balance sheet at December 31, 1996. The corrections
primarily pertain to timing in the recognition of the provision for doubtful
accounts and customer incentive programs, the recognition of vendor rebates
and the recognition of certain federal income tax credits. The following
summarizes the net effect of these adjustments in millions:
1996 1995 1994
--------- --------- ---------
(MILLIONS OF DOLLARS)
Earnings (loss) before income taxes:
As previously reported $ (249.3) $ (3.2) $ 102.1
As restated (228.7) (3.3) 91.5
Net earnings (loss):
As previously reported (211.1) (9.7) 63.3
As restated (206.3) (5.8) 59.7
Earnings (loss) per common share shareholder:
As previously reported (6.26) (.53) 1.46
As restated (6.12) (.42) 1.21
Retained earnings at December 31:
As previously reported (193.0) 45.0 82.0
As restated (193.0) 40.2 73.3
In addition, previously reported retained earnings as of January 1, 1994 has
been reduced by $5.1 million, which is net of applicable income taxes of
$4.8 million, for the effect of similar items.
52
54
High and low prices for the company's common stock for each quarter in the
past 2 years were as follows:
1996 1995
-------------------- --------------------
QUARTER HIGH LOW HIGH LOW
- ------- --------- --------- --------- ---------
First $ 20 7/8 $ 17 3/8 $ 23 1/4 $ 16 3/4
Second 19 7/8 17 7/8 19 7/8 16 7/8
Third 22 1/2 16 1/4 23 3/4 17 3/4
Fourth 24 1/2 20 3/8 21 1/2 17 1/4
Quarterly dividends of $.12 per common share were declared for 1996 and
1995. In February 1997, the company's Board of Directors declared a
quarterly dividend of $.12 per common share. This was the 244th
consecutive quarterly dividend declared by the company.
53
55
THIRD QUARTER RESULTS
6. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ -----------------------
(AS RESTATED) (AS RESTATED)
1997 1996 1997 1996
--------- ------------- --------- -----------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Net sales $ 424.2 $ 492.4 $ 1,391.6 $ 1,551.9
Cost of products sold 321.4 409.2 1,061.4 1,238.0
--------- ------ --------- -----------
Gross margin 102.8 83.2 330.2 313.9
Selling, general and administrative expenses (74.0) (79.7) (225.9) (243.7)
Adjustment of assets held for sale to fair value -- (6.4) -- (6.4)
Re-engineering, severance and other related charges -- (5.6) -- (5.6)
Interest expense (6.5) (11.0) (25.3) (32.8)
Interest income 2.4 .6 4.2 2.1
International currency exchange losses -- (.7) -- (3.0)
Other, net 2.9 (.3) 1.3 (1.4)
--------- ------ --------- -----------
Earnings (Loss) Before Income Taxes and Extraordinary
Item 27.6 (19.9) 84.5 23.1
Income taxes (benefits) 10.2 (7.3) 24.7 8.6
--------- ------ --------- -----------
Net Earnings (Loss) Before Extraordinary Item 17.4 (12.6) 59.8 14.5
Extraordinary item--loss on early retirement of debt, net
of applicable income tax benefit -- -- 2.6 --
--------- ------ --------- -----------
Net Earnings (Loss) 17.4 (12.6) 57.2 14.5
Preferred stock dividends, net of tax benefits .6 2.2 4.9 .6
--------- ------ --------- -----------
Net Earnings (Loss) Available for Common Shares $ 16.8 $ (14.8) $ 52.3 $ 7.9
========= ========= ========= ==========
EARNINGS (LOSS) PER COMMON SHARE
Primary
Income (loss) before extraordinary item $ .45 $ (.41) $ 1.52 $ .23
Extraordinary item--loss on early retirement of debt,
net of applicable income tax benefit -- -- (.07) --
--------- ------ --------- ----------
Net Earnings (Loss) $ .45 $ (.41) $ 1.45 $ .23
========= ========= ========= ==========
Fully Diluted
Income (loss) before extraordinary item $ .40 $ (.41) $ 1.39 $ .23
Extraordinary item--loss on early retirement of debt,
net of applicable income tax benefit -- -- (.06) --
--------- ------ --------- ----------
Net Earnings (Loss) $ .40 $ (.41) $ 1.33 $ .23
========= ========= ========= ==========
See accompanying notes.
54
56
7. CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31
1997 1996
------------- ------------
(MILLIONS OF DOLLARS)
(UNAUDITED)
ASSETS
Current Assets:
Cash and equivalents $ 20.5 $ 33.1
Accounts receivable (net of allowance for doubtful accounts of $17.1 million and
$16.3 million) 239.4 231.3
Inventories 291.9 417.0
Prepaid expenses and income tax benefits 92.5 81.5
--------- ----------
Total Current Assets 644.3 762.9
Property, Plant and Equipment 312.8 350.3
Goodwill 146.3 154.0
Other Intangible Assets 60.7 63.1
Business Investments and Other Assets 133.0 124.9
--------- ----------
Total Assets $ 1,297.1 $ 1,455.2
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 42.1 $ 280.1
Accounts payable 123.0 142.7
Accrued compensation 45.9 37.6
Other accrued liabilities 192.4 203.4
--------- ----------
Total Current Liabilities 403.4 663.8
Long-Term Debt 278.5 209.6
Post-employment Benefits 199.3 207.1
Other accrued Liabilities 67.9 56.2
--------- ----------
Total Liabilities 949.1 1,136.7
Shareholders' Equity:
Series D preferred stock -- 76.6
Series C ESOP preferred stock 49.7 53.1
Unearned ESOP compensation (25.1) (28.4)
Common stock 200.3 175.7
Additional paid-in capital 350.7 283.5
Accumulated deficit (154.6) (193.0)
Currency translation and other (73.0) (49.0)
--------- ----------
Total Shareholders' Equity 348.0 318.5
--------- ----------
Total Liabilities and Shareholders' Equity $ 1,297.1 $ 1,455.2
========= ==========
See accompanying notes.
55
57
8. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
------------------
1997 1996
------- -------
(MILLIONS OF DOLLARS)
CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES
Net earnings $ 57.2 $ 14.5
Adjustments to reconcile net earnings to net cash provided from operating activities
Depreciation and amortization 40.7 46.4
Deferred income taxes 5.3 (.7)
Post-employment benefits 1.1 1.8
(Increase) decrease in accounts receivable (51.2) 8.3
Decrease in inventories 48.2 33.3
Increase (decrease) in accounts payable 1.1 (12.4)
Increase in current liabilities and other 34.9 30.2
Adjustment of assets held for sale to fair value -- 6.4
Re-engineering, severance and other related charges -- 5.6
Loss on early retirement of debt 4.1 --
Payments against restructuring and re-engineering reserves (15.9) (13.2)
--------- ------
Net Cash Provided From Operating Activities 125.5 120.2
CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES
Expenditures for property, plant and equipment (29.9) (34.7)
Proceeds from sale of business investments 78.7 11.0
Purchases of business investments -- (.3)
--------- ------
Net Cash Provided From (Used By) Investing Activities 48.8 (24.0)
CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES
Issuance of common stock 12.0 .4
Fees for early retirement of debt (4.1) --
Fees related to issuance of debt (9.4) --
Net decrease in debt (163.6) (57.6)
Dividends (18.2) (19.4)
Other (3.6) (3.4)
--------- ------
Net Cash Used By Financing Activities (186.9) (80.0)
--------- ------
Increase (Decrease) in Cash and Equivalents (12.6) 16.2
Cash and Equivalents at Beginning of Period 33.1 19.4
--------- ------
Cash and Equivalents at End of Period $ 20.5 $ 35.6
========= ======
See accompanying notes.
9. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER
30, 1997
(i) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-
and nine-month periods ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
annual report on Form 10-K/A for the year ended December 31, 1996.
56
58
(II) EARNINGS PER COMMON SHARE
The computation of primary earnings per share is based on the
weighted average number of outstanding common shares during the period
plus, when their effect is dilutive, common stock equivalents
consisting of certain shares subject to stock options. Fully diluted
earnings per share additionally assumes the conversion of outstanding
Series C ESOP and Series D preferred stock and the contingent issuance
of common stock to satisfy the Series C ESOP preferred stock redemption
price guarantee when their effect is dilutive. The number of contingent
shares used in the fully diluted calculation is based on the market
price of the common stock on September 30, 1997 and the number of
preferred shares held by the Employee Stock Ownership Plan (ESOP) that
were allocated to participants'accounts as of September 30 of each of
the respective years.
The primary weighted average number of common and equivalent
shares outstanding (in thousands) was 37,490 and 36,050 for the three-
and nine-month periods ended September 30, 1997, and 35,097 and 35,088
for the three- and nine-month periods ended September 30, 1996. The
fully diluted weighted average number of common and equivalent shares
outstanding (in thousands) was 42,016 and 41,839 for the three- and
nine- month periods ended September 30, 1997, and 35,097 and 35,122 for
the three- and nine-month periods ended September 30, 1996,
respectively.
Net earnings used in the computations of primary earnings per
share are reduced by preferred stock dividend requirements. Net
earnings used in the computation of fully diluted earnings per share
are reduced by amounts representing the preferred stock dividends when
their effect is anti-dilutive and amounts representing the additional
after-tax contribution that would be necessary to meet ESOP debt
service requirements under an assumed conversion of the Series C ESOP
preferred stock when their effect is dilutive.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share". SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997. The
adoption of SFAS No. 128 would not materially impact the results of the
earnings per share calculation for the three months and the nine months
ended September 30, 1997 and 1996 and is not expected to materially
impact the results of the earnings per share calculation for the year
ended December 31, 1997.
Quarterly dividends of $.12 per common share were declared for
both the first, second and third quarters of 1997 and 1996.
(III) INVENTORIES
At September 30, 1997 and December 31, 1996, inventories consisted of
the following:
1997 1996
--------- ---------
(MILLIONS OF
DOLLARS)
Finished products $ 274.9 $ 417.0
Work-in-process 21.1 28.0
Raw materials 15.3 20.0
--------- ---------
311.3 465.0
Reserve for inventory valuation (19.4) (48.0)
--------- ---------
$ 291.9 $ 417.0
========= =========
The $28.6 million decrease in the reserve for inventory
valuation resulted primarily from the Company's initiative to dispose
of slow moving and obsolete inventory that was fully reserved and the
sales of certain international retail and wholesale businesses. As
such, the reduction in the inventory reserves related to this
initiative did not affect the Company's 1997 earnings.
(IV) DEBT
In June 1997, the Company entered into a new $350 million
multicurrency revolving credit facility agreement with a consortium of
international banks which matures in June 2002. This new agreement
replaces the exiting U.S. and European revolving credit facilities and
has similar pricing terms. The revolving credit facility contains
restrictive covenants that, among other matters, require the Company to
maintain certain financial ratios. As of September 30, 1997, there were
no borrowings outstanding against the revolving credit facility.
In April 1997, the Company issued $125 million of 10-year 8.8% senior
notes.
57
59
(V) ADJUSTMENT OF ASSETS HELD FOR SALE
The Company received $78.7 million in cash for businesses sold
in the first nine months of 1997, while the purchasers assumed certain
liabilities. The results of operations have been included in the
Company's consolidated statements of earnings through the date of sale
for the following transactions.
In January 1997, the Company completed the previously announced
sale of its heavy wall bearing division in Germany and Brazil to
Zollern BHW Gleitlager GmbH, a member of Fuerstlich Hohenzollernsche
Werke Laucherthal GmbH Co.
On May 13, 1997, the Company completed the previously announced
sale of its Australian replacement operations to Automotive Components
Limited.
On June 3, 1997, the Company completed the previously announced
sale of its South African replacement operations. The Company sold the
distribution operations to Chariots Holding Limited and the retail
operations to Lexshell 16 Investment Holdings (Proprietary) Limited.
The Company continually reviews and updates its impairment
reserves related to the divestiture of its remaining retail/wholesale
replacement operations and adjusts the reserve components to
approximate the net fair value of its remaining businesses held for
sale. There has been no net effect on the 1997 statement of earnings
related to the above events.
(VI) INCOME TAXES
During the second quarter of 1997, the Company recognized an
income tax benefit of $6.8 million related to the sales of the South
African and Australian businesses.
(VII) EXTRAORDINARY ITEM
During the second quarter of 1997, the Company retired $64.7
million in private placement debt. The early retirement of the debt
required a make-whole payment of $4.1 million, which was recorded as an
extraordinary item of $2.6 million, net of the related tax benefit.
(VIII) REDEMPTION OF SERIES D CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
On August 8, 1997, the Company announced its call for the
redemption of all its outstanding $3.875 Series D Convertible
Exchangeable Preferred Stock. Upon calling for redemption, the
preferred stockholders elected to convert each preferred share into
2.778 shares of common stock. On August 28, 1997, the Company issued
4.4 million shares of common stock in exchange for all of the
outstanding Series D convertible exchangeable preferred stock.
(IX) RESTATEMENT
In August 1997, the Company filed a Form 10-K/A which restated
the previously issued 1996 financial statements for certain charges
recorded in 1996. The restatement did not affect the Company's balance
sheet at December 31, 1996. The corrections primarily pertained to
timing in the recognition of the provision for doubtful accounts and
customer incentive programs, the recognition of vendor rebates and the
recognition of certain federal income tax credits. The following
summarizes the net effect of these adjustments on the three-and
nine-month periods ended September 30, 1996, in millions:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1996
------------- -------------
(MILLIONS OF DOLLARS)
Earnings (loss) before income taxes:
As previously reported $ (27.4) $ 14.4
As restated (19.9) 23.1
Net earnings (loss):
As previously reported (17.3) 9.1
As restated (12.6) 14.5
Earnings (loss) per common share:
As previously reported (.56) .07
As restated (.41) .23
Accumulated deficit at December 31, 1996:
As previously reported (193.0) (193.0)
As restated (193.0) (193.0)
58
60
(X) SUBSEQUENT EVENT
On October 16, the company announced they had made a cash offer
to acquire all the outstanding common stock of T&N for 260 pence per
share. The offer values T&N's share capital at $2.4 billion. In
addition, the company will assume the debt of T&N at closing. The
company will finance the acquisition through a committed bank facility
from Chase Manhattan Bank. The company's intention is to put in place a
permanent capital structure of a combination of equity and debt
financing.
The offer is subject to various conditions customary in the
United Kingdom, including acceptances of the offer by T&N shareholders
and the receipt of all applicable regulatory approvals in the United
States and Europe. As part of the acquisition process, certain
financing, professional and other related fees have been and will
continue to be incurred in 1997. These fees have been capitalized as
incurred and will be accounted for as direct acquisition or financing
costs once the transaction closes. Management fully expects the
acquisition to close, however, in the event the acquisition is not
completed, these fees would be charged to expense and would materially
impact net earnings at that time. The company may elect to accelerate
payment of certain portions of the bank facility which would result in
an extraordinary charge due to the write-off of the financing cost
associated with the early retirement of debt.
In addition, as part of financing the acquisition, the company
purchased for $28.1 million a foreign currency option with a notional
amount of $2.5 billion to cap the effect of potential unfavorable
fluctuations in the British pound/US dollar exchange rate. The cost of
the option and its change in fair value will be reflected in the
results of operations in the fourth quarter of 1997. The option's fair
value will exceed its cost if the British pound to US dollar exchange
rate exceeds $1.667 at its expiration date in the first quarter of
1998. At closing on 10 November 1997, the British pound to US dollar
exchange rate was $1.697.
RESTRICTED STOCK:
In October 1997, the company met certain share price performance
criteria under the 1989 Long-Term Incentive Plan which resulted in the
recognition of $5.4 million in compensation expense related to vesting
of restricted stock.
59
61
APPENDIX III
FINANCIAL INFORMATION ON T&N
1. NATURE OF FINANCIAL INFORMATION
The financial information for the three years ended 31 December 1996 contained
in this Appendix III is extracted from the audited consolidated accounts of T&N
for the three years ended on that date. Figures for the years ended 31 December
1994 and 1995 have been restated to reflect disposals in subsequent years.
The financial information contained in this Appendix III does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
Statutory accounts for each of the three financial years ended 31 December 1994,
1995 and 1996, on which unqualified audit reports (not containing a statement
under section 237(2) or (3) of the Companies Act 1985) have been given by T&N's
auditors, have been delivered to the Registrar of Companies.
2. CONSOLIDATED GROUP PROFIT AND LOSS ACCOUNT
YEAR ENDED 31 DECEMBER
----------------------------------------
NOTES 1996 1995 1994
----- ------------ ------------ ------------
pound sterling pound sterling pound sterling
m m m
TURNOVER
Continuing operations 1,891.5 1,849.3 1,643.9
Acquisitions 4.8 -- --
------------ ------------ ------------
Total continuing operations 1,896.3 1,849.3 1,643.9
Discontinued operations 59.7 242.2 292.2
------------ ------------ ------------
TOTAL TURNOVER EXCLUDING ASSOCIATED UNDERTAKINGS 1(a) 1,956.0 2,091.5 1,936.1
Cost of sales (1,418.3) (1,507.8) (1,407.7)
------------ ------------ ------------
GROSS PROFIT 537.7 583.7 528.4
Operating expenses (370.3) (369.7) (353.0)
Share of profits of associated undertakings 11.1 12.6 5.0
------------ ------------ ------------
OPERATING PROFIT BEFORE ASBESTOS-RELATED COSTS 1(b),(d) 178.5 226.6 180.4
Asbestos-related costs (515.0) (51.3) (140.0)
------------ ------------ ------------
OPERATING (LOSS)/PROFIT ON ORDINARY ACTIVITIES
Continuing operations (342.5) 152.7 21.6
Acquisitions 0.3 -- --
------------ ------------ ------------
Total continuing operations (342.2) 152.7 21.6
Discontinued operations 5.7 22.6 18.8
------------ ------------ ------------
Total operating (loss)/profit on ordinary activities (336.5) 175.3 40.4
(Loss)/profit on disposal of discontinued operations 2 (1.0) 1.5 --
Release/(charge) of provision made in 1995 2 1.4 (1.4) --
Loss on disposal of properties (continuing operations) (2.0) -- --
Provision against fixed asset investments: Kolbenschmidt
costs 3 (23.4) (19.5) --
------------ ------------ ------------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE FINANCE CHARGES (361.5) 155.9 40.4
Net interest payable and similar charges 4 (26.8) (35.8) (29.7)
------------ ------------ ------------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (388.3) 120.1 10.7
Tax on (loss)/profit on ordinary activities 5 (8.0) (41.4) (22.0)
------------ ------------ ------------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (396.3) 78.7 (11.3)
Minority interests (4.5) (8.4) (5.2)
------------ ------------ ------------
(Loss)/profit attributable to shareholders (400.8) 70.3 (16.5)
Dividends paid and proposed 6 (16.0) (31.9) (20.8)
------------ ------------ ------------
TRANSFER (FROM)/TO RESERVES 21 (416.8) 38.4 (37.3)
------------ ------------ ------------
(Loss)/earnings per L1 share 7 (75.4)p 13.3p (3.2)p
Earnings per L1 share pre asbestos-related costs 7 14.8p 22.7p 19.3p
Dividends per L1 share 6 3.0p 6.0p 10.85p
------------ ------------ ------------
60
62
3. CONSOLIDATED GROUP BALANCE SHEET
31 DECEMBER
NOTES 1996
----- -----------
pound sterling
m
FIXED ASSETS
Tangible assets 11 697.2
Investments 12 59.5
-----------
756.7
CURRENT ASSETS
Stocks 13 247.6
Debtors falling due within one year 14 350.8
Debtors falling due after more than one year 14 66.1
Investments 15 5.6
Cash at bank and in hand 18 131.5
-----------
801.6
-----------
CREDITORS: DUE WITHIN ONE YEAR
Borrowings 18 77.2
Other creditors 16 472.5
-----------
549.7
-----------
NET CURRENT ASSETS
251.9
-----------
TOTAL ASSETS LESS CURRENT LIABILITIES 1,008.6
CREDITORS: DUE AFTER MORE THAN ONE YEAR
Borrowings 18 260.2
Other creditors 17 15.9
-----------
276.1
-----------
PROVISIONS FOR LIABILITIES AND CHARGES 19 589.5
-----------
NET ASSETS 143.0
===========
CAPITAL AND RESERVES
Called up share capital 20 532.2
Share premium account 21 0.2
Revaluation reserves 21 21.6
Associated undertakings' reserves 21 5.0
Goodwill write off reserve 21 (181.1)
Profit and loss account 21 (259.6)
-----------
EQUITY SHAREHOLDERS' FUNDS 118.3
Minority equity interests 24.7
-----------
143.0
===========
61
63
4. CONSOLIDATED GROUP CASH FLOW STATEMENT
YEAR ENDED
NOTES 31 DECEMBER 1996
----- --------------------------
pound sterling poound sterling
m m
CASH INFLOW FROM OPERATING ACTIVITIES
Before asbestos-related payments 22(a) 287.3
Asbestos-related payments 22(a) (64.8)
----------
NET CASH INFLOW FROM OPERATING ACTIVITIES 22(a) 222.5
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 22(b) (31.4)
TAXATION 22(c) (28.9)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT 22(d) (125.5)
----------
36.7
ACQUISITIONS AND DISPOSALS 22(e) 59.3
EQUITY DIVIDENDS PAID (31.9)
----------
64.1
MANAGEMENT OF LIQUID RESOURCES 22(f) (6.2)
FINANCING 22(g)
Reduction in debt (30.1)
Issue of T&N plc shares 1.2
Capital input by minorities 1.8 (27.1)
---------- ----------
INCREASE IN CASH 30.8
----------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Increase in cash in the year 24 30.8
Cash outflow from decrease in debt and lease financing 24 30.1
Cash outflow from movement in liquid resources 24 6.2
----------
Change in net debt resulting from cash flows 24 67.1
Exchange difference 24 42.6
----------
Reduction in net debt 109.7
Net debt at start of year 24 (310.0)
----------
Net debt at end of year 24 (200.3)
==========
62
64
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
YEAR ENDED DECEMBER
-----------------------------------------
NOTES 1996 1995 1994
----- ----- ---- ----
pound sterling pound sterling pound sterling
m m m
(Loss)/profit attributable to shareholders (400.8) 70.3 (16.5)
Other recognised gains and losses:
Unrealised profit on revaluation of fixed assets -- 1.6 --
Currency translation differences on foreign currency net
investments 21 (23.1) (1.6) (9.1)
Other recognised losses 21 (0.6) (1.4) (1.9)
--------- --------- ---------
(23.7) (1.4) (11.0)
--------- --------- ---------
Total recognised gains and losses relating to the year (424.5) 68.9 (27.5)
========= ========= =========
1996 1995 1994
---- ---- ----
pound sterling pound sterling pound sterling
m m m
HISTORICAL COST PROFITS/(LOSSES)
Reported (loss)/profit on ordinary activities before taxation (388.3) 120.1 10.7
Realisation of revaluation surpluses 21 5.6 6.6 0.4
Difference between the historical depreciation charge and the
actual depreciation charge 0.6 0.7 0.9
--------- --------- ---------
Historical cost (loss)/profit on ordinary activities before
taxation (382.1) 127.4 12.0
--------- --------- ---------
Historical cost (loss)/profit for the year after taxation,
minority interests and dividends (410.6) 45.7 (36.0)
========= ========= =========
1996 1995 1994
---- ---- ----
pound sterling pound sterling pound sterling
m m m
RECONCILIATIONS OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS (400.8) 70.3 (16.5)
DIVIDENDS (16.0) (31.9) (20.8)
--------- --------- ---------
TRANSFER (FROM)/TO RESERVES (416.8) 38.4 (37.3)
Other recognised gains and losses (as above) (23.7) (1.4) (11.0)
New share capital subscribed 1.2 2.2 3.4
Goodwill 21 9.4 (4.4) (1.0)
--------- --------- ---------
Net change (429.9) 34.8 (45.9)
Shareholders' funds at start of year 548.2 513.4 559.3
--------- --------- ---------
Shareholders' funds at end of year 118.3 548.2 513.4
========= ========= =========
63
65
5. PRINCIPAL ACCOUNTING POLICIES
The Group follows applicable UK Accounting Standards and Practice. The financial
statements are prepared under the historical cost convention, as modified by the
revaluation of certain fixed assets.
BASIS OF CONSOLIDATION
The consolidated financial statements comprise the audited accounts of the
Company and its subsidiary undertakings, together with the Group's share of the
profits and losses and of the reserves of its associated undertakings. The
accounts of subsidiaries are drawn up to the same date as those of the Company.
Results of subsidiaries acquired or sold during the year are included from, or
up to, their respective dates of acquisition or disposal.
ASSOCIATED UNDERTAKINGS
Associated undertakings are companies, other than subsidiaries, in which the
Group has a long-term and substantial investment and over which significant
influence is exercised, normally through board representation. Associated
undertakings are accounted for on the equity basis, that is, the Group's share
of profits before tax, and taxation are included in the profit and loss account.
Its interest in their net assets, other than goodwill, is included in
investments in the Group balance sheet.
DEFERRED TAX
Deferred tax is attributable to timing differences between results as computed
for tax purposes and as stated in the accounts. These differences arise from,
for example, different rates at which allowances are granted for capital
expenditure for tax purposes and at which depreciation is charged in the
accounts. Provision for deferred tax, including that relating to post retirement
benefits, is made only to the extent that it is probable that an actual
liability or asset will crystallise.
DEPRECIATION
Depreciation is provided on cost or the revalued amount, as applicable, to write
fixed assets down to their estimated residual values on a straight line basis as
follows:
- - Freehold buildings, 2.5% per annum
- - Leasehold buildings are assumed to have a life equal to the period of the
lease, but with a maximum of 40 years
- - Plant and machinery, at rates ranging from 7% to 33% per annum
- - Mining assets, on a variable rate basis by reference to the current
extraction rate of ore in relation to known ore reserves
FOREIGN CURRENCIES
Overseas companies' results and cash flows are translated into sterling at
average exchange rates and their balance sheets at year end exchange rates. An
adjustment to local currency results is made to reflect current price levels,
where appropriate, before translation into sterling. Exchange differences
arising from the translation of the opening balance sheets and results of
overseas companies are dealt with through reserves. Exchange differences on
transactions in foreign currencies are included in the profit and loss account.
GRANTS
Grants related to expenditure on tangible fixed assets are credited to profit
over a period approximating to the lives of qualifying assets. Grants receivable
to date, less the amounts so far credited to profit, are included in creditors.
INTANGIBLES
Goodwill, being the excess of the fair value of purchase consideration over the
fair value attributed to the net tangible assets acquired, is charged to
reserves. On disposal of businesses, any goodwill previously eliminated on
acquisition is included in determining the profit or loss on disposal. Other
intangibles are written off when acquired.
LEASING
Finance leases of significant items of plant and machinery are capitalised and
depreciated in accordance with the Group's depreciation policy. The capital
element of future lease payments is included under borrowings. Interest,
calculated on the reducing balance method, is included within net financing
charges. Operating lease rentals are charged to the profit and loss account when
incurred.
64
66
PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS
The cost of providing pensions and other post-employment benefits is charged
against profits on a systematic basis, with pension surpluses and deficits being
amortised over the expected remaining service lives of current employees.
Differences between the amounts charged in the profit and loss account and
payments made to the plans are treated as assets or liabilities in the balance
sheet. The unfunded post-employment medical benefit liability is included in
provisions in the balance sheet.
RESEARCH AND DEVELOPMENT
Research and development revenue expenditure, including all expenditure on
patents and trademarks, is written off when incurred.
STOCKS
Stocks are stated at the lower of original cost and net realisable value on a
first-in-first-out basis. Cost comprises material, labour and an allocation of
attributable overhead expenses. Net realisable value is the price at which
stocks can be sold in the normal course of business after allowing for the costs
of realisation.
TURNOVER
Turnover is the value of sales to third parties at net invoice value excluding
value added tax or equivalent overseas sales taxes.
65
67
6. NOTES TO THE FINANCIAL INFORMATION
(1.) Analysis of Results
The Composites and Camshafts grouping comprises Camshafts, Powder Metal
Products, Heat Transfer Products and Industrial Products and Materials. Figures
for the Engine Parts Aftermarket Group are reflected in the product groupings to
which they relate.
(a) TURNOVER
Market Supplied
1996 1995 1994
------------ ------------ ------------
pound sterling pound sterling pound sterling
m m m
Light vehicle original equipment 782.0 756.6 639.4
Automotive aftermarket 529.4 480.1 464.5
Industrial and heavy duty original equipment 644.6 854.8 832.2
------------ ------------ ------------
1,956.0 2,091.5 1,936.1
============ ============ ============
Product Groupings
1996 1995 1994
------------ ------------ ------------
LM LM LM
Bearings 333.1 342.5 310.8
Sealing Products 259.7 270.5 261.0
Friction Products 329.0 329.3 308.5
Piston Products 574.7 559.6 504.0
Composites and Camshafts 399.8 347.4 259.6
------------ ------------ ------------
Continuing operations 1,896.3 1,849.3 1,643.9
Discontinued operations 59.7 242.2 292.2
------------ ------------ ------------
1,956.0 2,091.5 1,936.1
============ ============ ============
Businesses acquired and discontinued
1996 1996 1995 1994
ACQUISITIONS DISCONTINUED DISCONTINUED DISCONTINUED
------------ ------------ ------------ ------------
pound sterling pound sterling pound sterling pound sterling
m m m m
Sealing Products -- 5.3 6.1 38.9
Friction Products -- -- 0.6 1.2
Piston Products 4.8 -- -- 1.4
Composites and Camshafts -- 0.1 85.0 117.3
Construction Materials and Engineering -- 54.3 150.5 133.4
------------ ------------ ------------ ------------
4.8 59.7 242.2 292.2
============ ============ ============ ============
Regional
BY ORIGIN BY DESTINATION
---------------------------------------- ----------------------------------------
1996 1995 1994 1996 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
pound sterling pound sterling pound sterling pound sterling pound sterling pound sterling
m m m m m m
UK 507.7 594.7 569.7 312.5 360.7 351.2
Mainland Europe 733.3 731.3 627.8 824.2 861.7 733.6
North America 560.2 541.6 550.3 578.6 561.6 548.2
South Africa 116.5 121.0 101.9 98.2 110.1 97.4
Zimbabwe 17.0 80.6 69.0 19.4 34.3 30.9
Other countries 21.3 22.3 17.4 123.1 163.1 174.8
------------ ------------ ------------ ------------ ------------ ------------
1,956.0 2,091.5 1,936.1 1,956.0 2,091.5 1,936.1
============ ============ ============ ============ ============ ============
Inter-group turnover between product groupings and regions is not material.
66
68
(b) OPERATING PROFIT BEFORE ASBESTOS-RELATED COSTS
Product Groupings
1996 1995 1994
---- ---- ----
pound sterling pound sterling pound sterling
m m m
Bearings 44.7 48.6 31.6
Sealing Products 21.1 25.9 25.1
Friction Products 16.9 29.0 26.9
Piston Products 41.4 55.1 43.9
Composites and Camshafts 48.7 45.4 34.1
------------ ------------ ------------
Continuing operations 172.8 204.0 161.6
Discontinued operations 5.7 22.6 18.8
------------ ------------ ------------
178.5 226.6 180.4
============ ============ ============
Businesses Acquired and Discontinued
1996 1996 1995 1994
ACQUISITIONS DISCONTINUED DISCONTINUED DISCONTINUED
------------ ------------ ------------ ------------
pound sterling pound sterling pound sterling pound sterling
m m m m
Sealing Products -- 0.3 0.3 (3.5)
Friction Products -- -- (0.1) (0.1)
Piston Products 0.3 -- -- 0.1
Composites and Camshafts -- -- 3.4 6.9
Construction Materials and Engineering -- 5.4 19.0 15.4
------------ ------------ ------------ ------------
0.3 5.7 22.6 18.8
============ ============ ============ ============
Regional
1996 1995 1994
----------- ------------ ------------
pound sterling pound sterling pound sterling
m m m
UK 68.4 69.5 50.7
Mainland Europe 46.1 72.1 49.2
North America 55.2 53.3 49.1
South Africa 7.9 13.0 8.7
Zimbabwe 1.5 15.5 18.1
Other countries (0.6) 3.2 4.6
------------ ------------ ------------
178.5 226.6 180.4
============ ============ ============
Asbestos-related costs, financing charges, losses on disposal of discontinued
operations and the provisions against the Kolbenschmidt investment are not
allocated by product groupings or region.
67
69
(c) CAPITAL EMPLOYED
Product groupings
1996
------------
pound sterling
m
Bearings 124.5
Sealing Products 82.0
Friction Products 133.6
Piston Products 259.9
Composites and Camshafts 148.2
------------
Continuing operations 748.2
Discontinued operations (3.7)
------------
744.5
Assets held for disposal and trade investments 14.6
Asbestos-related provisions (440.6)
Net deferred consideration for acquisitions and disposals 24.8
------------
Capital employed 343.3
Net borrowings (200.3)
------------
Net assets 143.0
============
Regional
1996
------------
LM
UK 230.6
Mainland Europe 240.4
North America 190.7
South Africa 40.4
Other countries 42.4
------------
744.5
============
(d) Costs of continuing operations charged in arriving at operating profit
before asbestos-related costs include L15.3m (1995 L11.3m, 1994 L19.8m) in
respect of redundancy and rationalisation. L8.1m of these costs have been
charged as administrative costs and the majority of the remainder as costs of
sales.
(e) Operating profit is stated after charging
1996 1995 1994
------------ ------------ ------------
pound sterling pound sterling pound sterling
m m m
Auditor's and its associates' remuneration
- -- as Group auditors (1.8) (1.8) (1.8)
- -- fees for other services (1.4) (0.9) (0.7)
Depreciation of tangible fixed assets
- -- owned assets (97.3) (100.3) (95.7)
- -- finance leased assets (1.0) (1.3) (2.4)
Operating lease rentals
- -- on plant and machinery (8.7) (7.8) (9.9)
- -- on land and buildings (7.4) (7.0) (7.6)
68
70
(2.) SALE OF DISCONTINUED OPERATIONS
The profit on disposal comprises:
1996
------------
pound sterling
m
Loss on disposal of businesses (3.4)
Profit on sale of 30% of Bellefontaine bearings business 2.4
------------
(1.0)
Add back provision made in 1995 1.4
------------
0.4
============
Disposals during 1996 comprised the following:
BUSINESS EFFECTIVE DATE
- -------- -------------------
Budd Chemical Company 5 January 1996
Construction Materials businesses in Zimbabwe and Zambia 31 March 1996
Tempered Spring 3 June 1996
AETC 30 June 1996
Industrial Sealing businesses in South Africa 31 December 1996
Ferodo Zambia 31 December 1996
Hydra-Tight France 31 December 1996
In addition to the above disposals, the Tempered Spring business in the United
States was closed. On 31 December 1996, 30% of the Glacier Vandervell
Bellefontaine bearings business was sold. Details of assets disposed are set out
below.
NET ASSETS AT DATE OF DISPOSAL
CONSTRUCTION TEMPERED BELLE-
MATERIALS SPRING AETC FONTAINE OTHERS TOTAL
------------ --------- -------- --------- --------- ---------
pound pound pound pound pound pound
sterling sterling sterling sterling sterling sterling
m m m m m m
Fixed assets 18.9 9.0 20.1 -- 4.3 52.3
Stocks 21.1 1.6 6.3 -- 2.2 31.2
Debtors 29.5 5.4 8.8 -- 2.1 45.8
Creditors (24.5) (5.3) (8.7) -- (3.5) (42.0)
Net (overdraft)/cash (4.9) -- -- -- 0.6 (4.3)
Goodwill on acquisition of
businesses -- 1.0 5.1 1.5 2.0 9.6
Minority interest sold -- -- -- 1.8 -- 1.8
------------ --------- --------- --------- --------- ---------
40.1 11.7 31.6 3.3 7.7 94.4
(Loss)/profit (1.6) (3.6) 5.9 2.4 (4.1) (1.0)
------------ --------- --------- --------- --------- ---------
Consideration realised 38.5 8.1 37.5 5.7 3.6 93.4
Analysis of consideration realised
Net cash proceeds 38.5 7.5 37.5 5.7 3.6 92.8
Preference shares -- 0.6 -- -- -- 0.6
------------ --------- --------- --------- --------- ---------
38.5 8.1 37.5 5.7 3.6 93.4
------------ --------- --------- --------- --------- ---------
Cash arising during the year from
disposal of operations
Net cash proceeds 38.5 7.5 37.5 5.7 3.6 92.8
Prior year disposals -- -- -- -- 1.3 1.3
Deferred consideration (22.3) -- -- -- (1.3) (23.6)
Net overdraft/(cash) disposed 4.9 -- -- -- (0.6) 4.3
------------ --------- --------- --------- --------- ---------
21.1 7.5 37.5 5.7 3.0 74.8
------------ --------- --------- --------- --------- ---------
Operating profit in 1996 to date of
disposal 1.5 -- 4.0 -- 0.2 5.7
============ ========= ========= ========= ========= =========
69
71
(3.) OPTION TO ACQUIRE HOLDING IN KOLBENSCHMIDT AG ("KS")*
The Company announced on 30 March 1995 that the Group had entered into option
arrangements on 1,345,452 shares in KS, representing approximately 49.99% of the
issued share capital of KS. The option arrangements were entered into with
Commerzbank AG. In February 1996 the Group extended these arrangements until 31
December 1996. During 1996 KS issued to all its shareholders 9 shares for each
share already held, such that the option arrangements related to the 13,454,520
shares still representing 49.99% of the issued share capital of KS. In December
1996 options over 6,727,260 shares expired. If Commerzbank AG sells these shares
at above Dm 14 per share, the Company will receive half of the excess over Dm 14
per share. The remaining options over a further 6,727,260 shares were
transferred to Metallbank GmbH and extended until 5 September 1997. The maximum
consideration payable on exercise of these options would be Dm 114.4m (pound
sterling m 43.4m). If the Company does not exercise the option over the shares
held by Metallbank GmbH, and Metallbank GmbH sell the shares at a price less
than Dm 17 per share, T&N is required to pay Metallbank GmbH the difference per
share between the price received and Dm 17. The exceptional charge of pound
sterling m 23.4m (1995 pound sterling m 19.5m) relates to continuing
operations and comprises:
1996 1995 1994
------------ ------------ ------------
pound pound pound
sterling sterling sterling
m m m
Transfer of options to Metallbank 8.5 -- --
Payable on lapse of options with Commerzbank 10.0 -- --
Provision against costs previously capitalised -- 12.0 --
Other holding costs 4.9 7.5 --
------------ ------------ ------------
23.4 19.5 --
============ ============ ============
(4.) Net Interest Payable and Similar Charges
Interest payable on bank loans, overdrafts and other loans
1996 1995 1994
------------ ------------ ------------
pound pound pound
sterling sterling sterling
m m m
- -- repayable within five years, not by instalments (26.2) (31.5) (17.9)
- -- repayable within five years, by instalments (4.4) (4.6) (4.8)
- -- repayable wholly or partly in more than five years (1.5) (3.4) (12.1)
Interest on finance leases repayable within five years (0.4) (0.3) (0.3)
------------ ------------ ------------
(32.5) (39.8) (35.1)
INTEREST RECEIVABLE 5.7 4.0 5.4
------------ ------------ ------------
(26.8) (35.8) (29.7)
============ ============ ============
(5.) Taxation
1996 1995 1994
------------ ------------ ------------
pound pound pound
sterling sterling sterling
m m m
UK corporation tax at 33% (1995 and 1994 33%) (15.2) (13.9) (6.8)
Relief for overseas taxation 8.6 8.8 5.0
Advance corporation tax written back/(off) 0.7 (3.9) (4.0)
Deferred tax 9.0 (4.4) 5.8
Prior period adjustments -- 0.4 (0.2)
------------ ------------ ------------
Total UK 3.1 (13.0) (0.2)
Overseas (21.5) (23.3) (23.4)
Overseas deferred tax 16.2 (0.8) 7.1
Associated undertakings (7.0) (5.6) (1.6)
Prior period adjustments 1.2 1.3 (3.9)
------------ ------------ ------------
(8.0) (41.4) (22.0)
============ ============ ============
The overseas tax charge has been reduced by pound 5.0m (1995 pound 6.0m, 1994
poumd 2.2m) by
utilising losses brought forward.
- --------------------------
*More recent information is contained in T&N's unaudited interim report for the
six months to 30 June 1997 which is reproduced on pages 85 to 90 of this
document.
70
72
The tax (charge)/credit arises as follows:
1996 1995 1994
-------------- -------------- --------------
pound sterling pound sterling pound sterling
m m m
On the disposal of operations (1.8) (2.4) --
On loss on disposal of properties (0.1) -- --
On provision against fixed asset investments 0.6 5.5 --
On asbestos-related costs 35.5 1.6 13.0
On other profits (42.2) (46.1) (35.0)
------------ ------------ ------------
(8.0) (41.4) (22.0)
============ ============ ============
Corporation tax relief for the asbestos charge is available only when payments
are made. As a consequence, the tax credit taken in these accounts is calculated
by reference to the payments made rather than the charge in the accounts and has
been increased by the related movement in the deferred tax debtor. No tax relief
is available on the goodwill of L9.7m (1995 L6.6m, 1994 nil) charged in arriving
at the profit on disposal of operations of L0.4m (1995 L0.1m, 1994 nil).
(6.) DIVIDENDS
1996 1995 1994
-------------------------- -------------------------- --------------------------
pound pound pound
sterling sterling sterling
P PER SHARE m P PER SHARE m P PER SHARE m
----------------------------------------------------------------------------------
Interim 3.00 (16.0) 3.00 (15.9) 7.50 (3.1)
Final -- -- 3.00 (16.0) 3.35 (17.7)
----------- ----------- ----------- ----------- ----------- -----------
3.00 (16.0) 6.00 (31.9) 10.85 (20.8)
=========== =========== =========== =========== =========== ===========
Because of the exceptional asbestos-related charge during 1996, the Company did
not have sufficient distributable reserves to declare a final dividend for 1996.
The directors declared a special first 1997 interim dividend of 3p per share
payable to shareholders on the register on 2 May 1997 in lieu of the final 1996
dividend, with the result that shareholders received dividends totalling 6p per
share, the same as for 1995, on the usual payment dates.
(7.) (Loss)/Earnings per pound 1 Share
(Loss)/Earnings:
1996 1995 1994
-------------------------- -------------------------- --------------------------
pound pound pound
sterling sterling sterling
P PER SHARE m P PER SHARE m P PER SHARE m
----------------------------------------------------------------------------------
Net basis (75.4) (400.8) 13.3 70.3 (3.2) (16.5)
Nil basis (75.6) (401.5) 14.0 74.2 (2.5) (12.6)
Final (pre asbestos-related
costs basis) 14.8 78.7 22.7 120.1 19.3 99.1
----------- ----------- ----------- ----------- ----------- -----------
Average number of shares in
issue weighted on a time
basis 531.6 530.2 514.5
=========== =========== ===========
In addition to earnings per share on the net basis, as required by SSAP 3, the
earnings per share are also shown after adjustment for asbestos-related costs.
The adjustment made is to add back asbestos-related costs of pound sterling
515.0m (1995 pound sterling 51.3m, 1994 pound sterling 140.0m) and
associated tax credits of pound sterling 35.5m (1995 pound sterling 1.6m,
1994 pound sterling 13.0m). In the opinion of the directors, this allows
shareholders to gain a clearer understanding of the performance of the Group.
There is no material difference between the earnings per share figures noted
above those calculated on a fully diluted basis.
Earnings per share calculated on a nil basis has been adjusted for
Advance Corporation Tax written back of pound sterling 0.7m (1995 charge of
pound sterling 3.9m, 1994 charge of pound sterling 4.0m).
71
73
(8.) Employees
1996 1995 1994
AVERAGE AVERAGE AVERAGE
NUMBER NUMBER NUMBER
------------ ------------ ------------
UK 10,036 11,613 11,996
Mainland Europe 9,765 10,228 10,433
North America 7,172 7,115 6,903
South Africa 4,379 4,221 3,924
Zimbabwe 2,069 8,785 8,780
Other countries 472 695 769
------------ ------------ ------------
33,893 42,657 42,805
============ ============ ============
At the year end the total number of employees was 30,473 (1995 40,941, 1994
42,416).
Employment costs
1996 1995 1994
------------ ------------ ------------
pound pound pound
sterling sterling sterling
m m m
Wages and salaries 601.1 635.8 600.5
Social security costs 96.0 96.0 91.5
Other pension costs (Note 9) 12.9 12.4 12.6
Other post-employment benefits (Note 9) 3.0 2.6 2.9
Redundancy payments 13.9 6.5 9.5
------------ ------------ ------------
726.9 753.3 717.0
============ ============ ============
(9.) Post-employment benefits
The Company and most of its subsidiaries operate both defined benefit and
defined contribution pension schemes. With the exception of the schemes in
Germany, the assets of the principal schemes are held in separate trustee-
administered funds. The most significant schemes are in the UK, Germany and the
US. The element of the total pension cost relating to overseas schemes has been
determined in accordance with local best practice and regulations and, where
applicable, on the advice of consultant actuaries.
The UK scheme is the largest, covering the majority of UK employees. The pension
cost is assessed in accordance with the advice of independent qualified
actuaries in order to secure final salary-related benefits. The most recent
actuarial review, using the projected unit method, was carried out on 31 March
1993 and, as a result of this review, a number of scheme improvements were made.
At 31 March 1993 the market value of the assets of the UK scheme was pound
sterling 747m (1990 pound sterling 648m) and the actuarial value of these assets
represented 129% (1990 143%) of the benefits that had accrued to members, after
allowing for increases in earnings and scheme improvements.
The assumptions made which have the most significant effect on the results of
this valuation are those relating to the differentials between the rates of
return on investments and the rates of increase in salaries and pensions. It was
assumed that the investment return would be 2% (1990 2%) per annum higher than
the rate of annual salary increases, and 5% (1990 4.5%) per annum higher than
the rate at which present and future pensions would increase.
The surplus in the UK scheme is being amortised over 13 years, the average
remaining service lives of employees. The credit arising from the amortisation
of this surplus more than offsets ongoing pension costs. The resultant SSAP 24
credit, including interest, was pound sterling 5.7m (1995 pound sterling
4.9m, 1994 pound sterling 4.6m).
From January 1994 until 31 March 1996 the Group made payments to the UK scheme
at a rate of 4% of pensionable earnings. Since 1 April 1996 no payments have
been necessary because of the surplus in the scheme.
In 1996 the prepayment in respect of pensions for the UK scheme increased by
pound sterling 9.0m to pound sterling 45.0m at the end of 1996. In 1995 it
increased by pound sterling 11.8m to pound sterling 36.0m. This amount is
included in debtors (Note 14).
In the US, the Group operates a number of defined benefit schemes and defined
contribution schemes. These schemes undergo an actuarial analysis annually.
In Germany, the Group operates a number of defined benefit pension schemes.
These undergo an actuarial valuation annually. Provisions for the liabilities
amounted to pound sterling 76.9m at the end of 1996 (1995 pound sterling
89.1m, 1994 pound sterling 79.9m).
72
74
In addition, other post-employment benefits in the US are fully provided for in
accordance with UK accounting standards. Provisions amounted to pound sterling
31.1m at the end of 1996 (1995 pound sterling 34.3m, 1994 pound sterling 46.7m)
in respect of these benefits. The cost of post-employment medical benefits in
the US was pound sterling 2.8m (1995 pound sterling 2.9m, 1994 pound sterling
2.9m).
There are no other significant post-employment benefits.
(10.) Directors' Emoluments
DIRECTORS' EMOLUMENTS 1996 1995 1994
------------------------- ------------ ------------ ------------
pound pound pound
sterling sterling sterling
000 000 000
Non-executive directors:
Fees 195 212 166
Consultancy fee -- deputy non-executive chairman -- 180 180
------------ ------------ ------------
195 392 346
------------ ------------ ------------
Executive directors:
Remuneration 1,363 1,353 1,186
Performance-related bonuses 50 322 283
------------ ------------ ------------
1,413 1,675 1,469
Pension contributions 32 56 34
------------ ------------ ------------
Total emoluments 1,445 1,731 1,503
Compensation for loss of office 564 -- --
------------ ------------ ------------
2,009 1,731 1,503
============ ============ ============
The pension contributions of pound sterling 32,000 (1995 pound sterling 56,000,
1994 pound sterling 30,000) represent cash paid to the UK Pension Scheme at
the contribution rate of 4% for the first quarter of 1996 and nil thereafter
(1995 4% for the year, 1994 4% for the year) plus payments to Mr Harding's
personal pension policy.
Chairman--highest paid director (excluding pension
contributions): 1996 1995 1994
------------ ------------ ------------
pound pound pound
sterling sterling sterling
000 000 000
Performance-related bonus -- 77 71
------------ ------------ ------------
320 397 365
============ ============ ============
FEES AND EMOLUMENTS, EXCLUDING
PENSION CONTRIBUTIONS, WERE: 1996 1995 1994
- -------------------------------------------------------- ------------ ------------ ------------
NUMBER NUMBER NUMBER
Nil - pound sterling 5,000 -- 2 --
pound sterling 5,001 - pound sterling 10,000 -- -- 1
pound sterling 15,001 - pound sterling 20,000 1 -- 3
pound sterling 20,001 - pound sterling 25,000 4 3 --
pound sterling 25,001 - pound sterling 30,000 2 2 --
pound sterling 30,001 - pound sterling 35,000 1 -- 1
pound sterling 35,001 - pound sterling 40,000 2 -- --
pound sterling 70,001 - pound sterling 75,000 1 -- --
pound sterling 125,001 - pound sterling 130,000 -- 1 --
pound sterling 165,001 - pound sterling 170,000 -- 1 --
pound sterling 175,001 - pound sterling 180,000 1 -- --
pound sterling 190,001 - pound sterling 195,000 -- -- 1
pound sterling 205,001 - pound sterling 210,000 -- -- 1
pound sterling 210,001 - pound sterling 215,000 -- 1 --
pound sterling 230,001 - pound sterling 235,000 -- -- 2
pound sterling 235,001 - pound sterling 240,000 1 -- 1
pound sterling 245,001 - pound sterling 250,000 -- 1 1
pound sterling 255,001 - pound sterling 260,000 -- 1 --
pound sterling 260,001 - pound sterling 265,000 1 2 --
pound sterling 265,001 - pound sterling 270,000 1 -- 1
pound sterling 320,001 - pound sterling 325,001 1 -- --
pound sterling 395,001 - pound sterling 400,000 -- 1 --
73
75
(11.) TANGIBLE FIXED ASSETS
(A) COST OR VALUATION
LAND AND PLANT AND
BUILDINGS MACHINERY TOTAL
------------ ------------ ------------
pound pound pound
sterling sterling sterling
m m m
At 1 January 1996 289.7 1,078.5 1,368.2
Currency translation (24.9) (93.0) (117.9)
Acquisition of businesses 1.0 4.8 5.8
Capital expenditure 9.2 115.4 124.6
Transfers between Group companies and reclassifications -- 2.2 2.2
Disposal of operations (43.5) (69.3) (112.8)
Other disposals (0.7) (20.8) (21.5)
------------ ------------ ------------
At 31 December 1996 230.8 1,017.8 1,248.6
============ ============ ============
Comprising:
Cost 149.5 998.3 1,147.8
Valuation:
in 1989 63.0 -- 63.0
other years 18.3 19.5 37.8
------------ ------------ ------------
230.8 1,017.8 1,248.6
============ ============ ============
Revaluations are carried out on an existing use basis.
(B) DEPRECIATION
LAND AND PLANT AND
BUILDINGS MACHINERY TOTAL
------------ ------------ ------------
pound pound pound
sterling sterling sterling
m m m
At 1 January 1996 47.2 528.1 575.3
Currency translation (3.0) (43.3) (46.3)
Transfers between Group companies and reclassifications (0.2) 3.1 2.9
Disposal of operations (20.0) (40.7) (60.7)
Other disposals (0.2) (17.9) (18.1)
Charge for the year 7.1 91.2 98.3
------------ ------------ ------------
At 31 December 1996 30.9 520.5 551.4
============ ============ ============
Net book value
At 31 December 1996 199.9 497.3 697.2
============ ============ ============
Included in the cost of fixed assets of the Group at 31 December 1996 are
buildings in the course of construction of pound sterling 2.3m and plant
and machinery in the course of construction of pound sterling 25.9m.
(C) NET BOOK VALUE OF LAND AND BUILDINGS
1996
------------
pound
sterling
m
Freehold land -- not depreciated 49.5
Freehold buildings 148.3
Long leasehold (over 50 years unexpired) 0.2
Short leasehold 1.9
------------
199.9
============
74
76
(D) CAPITALISED LEASES INCLUDED IN PLANT AND MACHINERY
1996
------------
pound
sterling m
Cost 28.4
Depreciation (23.8)
------------
Net book value 4.6
============
(E) HISTORICAL COST OF TANGIBLE FIXED ASSETS
LAND AND PLANT AND
BUILDINGS MACHINERY TOTAL
------------ ------------ ------------
pound pound pound
sterling m sterling m sterling m
Cost or ascribed value 199.4 1,016.6 1,216.0
Charge for the year (37.8) (519.5) (557.3)
------------ ------------ ------------
Net historical cost value
At 31 December 1996 161.6 497.1 658.7
============ ============ ============
(12.) FIXED ASSET INVESTMENTS
ASSOCIATED OTHER
UNDERTAKINGS OTHER SHARES INVESTMENTS TOTAL
------------ ------------ ------------ ------------
pound pound pound pound
sterling m sterling m sterling m sterling m
Cost or valuation
At 1 January 1996 52.4 7.6 19.9 79.9
Currency translation (5.9) (0.1) (5.7) (11.7)
Additions 7.0 0.7 23.4 31.1
Disposals and repayments -- (0.2) -- (0.2)
Reclassifications and other movements 0.9 (0.1) -- 0.8
Share of retained losses (2.7) -- -- (2.7)
------------ ------------ ------------ ------------
At 31 December 1996 51.7 7.9 37.6 97.2
------------ ------------ ------------ ------------
Provisions:
At 1 January 1996 -- (0.1) (19.8) (19.9)
Currency translation -- -- 5.6 5.6
Provision for the year -- -- (23.4) (23.4)
------------ ------------ ------------ ------------
At 31 December 1996 -- (0.1) (37.6) (37.7)
============ ============ ============ ============
51.7 7.8 -- 59.5
============ ============ ============ ============
Listed investments included above in associated undertakings at net book
value are pound sterling 7.5m -- market value pound sterling 5.7m. At 31
December 1996, Group associated undertakings investments included loans
receivable of pound sterling 1.8m.
(13.) STOCKS
1996
------------
pound
sterling m
Raw materials and consumables 41.9
Work in progress 45.7
Finished goods 160.0
------------
247.6
============
75
77
(14.) DEBTORS
(A) DEBTORS FALLING DUE WITHIN ONE YEAR
1996
------------
pound
sterling
m
Trade 260.2
Amounts owed by associated undertakings 1.4
Amounts owed in respect of disposals of operations 24.8
Assets held for disposal 6.8
Overseas taxation recoverable 6.1
Deferred tax recoverable (Note 25) 13.9
Prepayments and accrued income 13.9
Other 23.7
------------
350.8
============
(B) DEBTORS FALLING DUE AFTER MORE THAN ONE YEAR
1996
------------
pound
sterling
m
Amounts owed in respect of disposals of operations 3.4
Prepaid pension costs (Note 9) 45.0
Deferred tax recoverable (Note 25) 16.5
Overseas taxation recoverable 0.2
Other debtors 1.0
------------
66.1
============
(15.) CURRENT ASSET INVESTMENTS
1996
------------
pound
sterling
m
Listed investments -- market value pound sterling 5.1m 5.1
Other investments -- market value pound sterling 0.6m 0.5
------------
5.6
============
(16.) CREDITORS -- DUE WITHIN ONE YEAR
1996
------------
pound
sterling
m
Trade 168.9
Amounts owed to associated undertakings 2.1
Payroll and other taxes, including social security 54.1
Taxation -- United Kingdom corporation tax 5.9
-- Overseas taxation 13.6
Accruals and deferred income 69.4
Grants not yet credited to profit 1.7
Asbestos-related insurance premium 92.0
Other 64.8
------------
472.5
============
76
78
(17.) CREDITORS -- DUE AFTER MORE THAN ONE YEAR
1996
------------
pound
sterling
m
Amounts owed in respect of acquisitions 3.4
Accruals and deferred income 1.3
Grants not yet credited to profit 4.4
Other 6.8
------------
15.9
============
(18.) NET BORROWINGS
BORROWINGS 1996
- ---------- ------------
pound
sterling
m
Repayable after more than five years
-- Instalments 7.7
-- Otherwise 0.7
Two to five years
-- Instalments 23.0
-- Otherwise 186.0
One to two years
-- Instalments 8.7
-- Otherwise 34.1
------------
Total due after more than one year 260.2
Total due within one year 77.2
------------
Total borrowings 337.4
------------
Cash at bank and in hand and current asset investments 137.1
------------
Net borrowings 200.3
============
Analysis of total borrowings
Finance leases 5.3
Bank overdrafts and loans secured on assets of the Group 37.4
Unsecured bank overdrafts and loans 294.7
------------
337.4
============
Analysis of borrowings by currency
Sterling (33.9)
Other European currencies 130.3
United States Dollar 80.4
South African Rand 9.3
Other currencies 14.2
------------
200.3
============
The majority of the Group's borrowings are at variable rates between 35
and 50 basis points above the applicable base rate for the currency. Interest
rate swaps have been entered into in a mix of currencies whereby the interest
charge on total debt of L108m has been swapped from variable to fixed rates for
periods of between two and five years. Included in cash and current asset
investments, at 31 December 1996, amounts totalling pound sterling 22.8m are
held by the Group's insurance company of which pound sterling 17.6m is required
to meet insurance regulatory requirements and which, as a result, is not readily
available for the general purposes of the Group.
77
79
(19.) PROVISIONS FOR LIABILITIES AND CHARGES
POST-
EMPLOYMENT ASBESTOS- OTHER
BENEFITS RESTRUCTURING RELATED PROVISIONS TOTAL
------------ ------------- ------------ ------------ ------------
pound pound pound pound pound
sterling sterling sterling sterling sterling
m m m m m
At 1 January 1996 159.7 1.3 99.0 18.8 278.8
Reclassified from/(to) creditors 0.3 -- (97.7) 1.2 (96.2)
Reclassified from debtors -- -- (1.3) -- (1.3)
Currency translation (20.9) -- (9.6) (1.5) (32.0)
Charge/(credit) for the year 15.4 -- 515.0 (1.3) 529.1
Payments (12.4) (1.3) (64.8) (10.4) (88.9)
------------ ------------- ------------ ------------ ------------
At 31 December 1996 142.1 -- 440.6 6.8 589.5
============ ============= ============ ============ ============
Other provisions include leaving benefits which may become payable to employees
in certain acquired companies and costs of environmental cleaning.
(20.) CALLED UP SHARE CAPITAL
ISSUED AND
AUTHORISED FULLY PAID
NO. OF NO. OF
SHARES SHARES
------------ ------------
Ordinary shares of L1 each
At 1 January 1996 725,000,000 531,160,903
Options exercised -- 1,042,262
------------ ------------
At 31 December 1996 725,000,000 532,203,165
============ ============
EXECUTIVE SAVINGS-
NO. OF RELATED NO. TOTAL NO. OF
SHARE OPTION SCHEMES SHARES OF SHARES SHARES
-------------------- ------------ ------------ ------------
At 1 January 1996 12,002,006 9,353,338 21,355,344
Granted 695,000 5,491,378 6,186,378
Exercised (260,797) (781,465) (1,042,262)
Lapsed (103,980) (1,525,676) (1,629,656)
------------ ------------ ------------
At 31 December 1996 12,332,229 12,537,575 24,869,804
============ ============ ============
SAVINGS-
SHARE OPTION SCHEMES EXECUTIVE RELATED TOTAL
-------------------- ------------ ------------ ------------
Number of holders 154 2,911
------------ ------------
Latest dates exercisable range between 1997/2006 1997/2003
Exercisable at the following price per share
101.7p -- 2,883,633 2,883,633
111.4p 1,847,345 -- 1,847,345
127.2p-147.8p 1,005,230 6,453,393 7,458,623
158.1p-172.1p 4,891,153 2,342,484 7,233,637
182.8p-199.8p 754,346 858,065 1,612,411
201.6p-226.2p 3,834,155 -- 3,834,155
------------ ------------ ------------
12,332,229 12,537,575 24,869,804
============ ============ ============
78
80
The interests in the Company, of those who were directors at 31 December 1996,
were as follows:
ORDINARY
SHARES
31.12.96
------------
Sir Colin Hope 105,562
M A Bell 16,000
R H Boissier 2,488
D G Carruthers 67,414
D A Harding 5,000
Sir Terence Harrison 5,000
Professor F R Hartley 3,001
P S Lewis 1,000
A C McWilliam 2,326
I F R Much 34,168
A J P Sabberwal 67,370
T A Welsh 5,914
Sir Geoffrey Whalen 4,654
------------
319,897
============
No director has any beneficial interest in shares of any subsidiary.
(21.) RESERVES
SHARE ASSOCIATED GOODWILL
PREMIUM REVALUATION UNDERTAKINGS' WRITE OFF PROFIT AND
ACCOUNT RESERVES RESERVES RESERVE LOSS ACCOUNT
------------ ------------ ------------ ------------ ------------
pound pound pound pound pound
sterling sterling sterling sterling sterling
m m m m m
At 1 January 1996 -- 29.3 12.9 (190.5) 165.3
Currency translation on overseas
assets -- (1.7) (5.9) -- (58.1)
Currency translation on net debt -- -- -- -- 42.6
Transfer to profit and loss -- -- (2.7) -- (414.1)
Realisation of revaluation
surpluses -- (5.6) -- -- 5.6
Premium on share issues 0.2 -- -- -- --
Goodwill arising on acquisitions -- -- -- (0.3) --
Goodwill on disposals -- -- -- 9.7 --
Other movements -- (0.4) 0.7 -- (0.9)
------------ ------------ ------------ ------------ ------------
At 31 December 1996 0.2 21.6 5.0 (181.1) (259.6)
============ ============ ============ ============ ============
Cumulative goodwill written off to Group reserves at 31 December 1996
totals pound sterling 248.3m, comprising pound sterling 181.1m shown above and
pound sterling 67.2m written off to a merger reserve in earlier years.
Retained earnings of overseas subsidiaries and associated undertakings would be
liable to tax if remitted as dividends to the United Kingdom.
79
81
(22.) NOTES TO THE CASH FLOW STATEMENT
1996
------------
pound
sterling
m
(A) RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
Operating loss (336.5)
Share of profits of associated undertakings (11.1)
Dividends received from associated undertakings 6.8
Depreciation 98.3
Loss on sale of tangible fixed assets 2.5
Decrease in stocks 22.2
Decrease in debtors 1.0
Decrease in creditors (2.0)
Decrease in provisions (7.9)
Other non cash movements (1.0)
Charge for asbestos-related costs 515.0
------------
Cash inflow from operating activities before asbestos-related payments 287.3
Asbestos-related payments (64.8)
------------
Cash inflow from operating activities after asbestos-related payments 222.5
============
(B) RETURNS ON INVESTMENT AND SERVICING OF FINANCE
1996
------------
pound
sterling
m
Interest received 5.2
Interest paid (35.4)
Dividends paid to minorities (1.2)
------------
(31.4)
============
(C) TAXATION
1996
------------
pound
sterling
m
UK tax paid (9.3)
Overseas tax paid (19.6)
------------
(28.9)
============
(D) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
1996
------------
pound
sterling
m
Purchase of tangible fixed assets (114.3)
Disposal of tangible fixed assets 2.3
Additions to trade and other investments (primarily Kolbenschmidt) (13.6)
Disposal of trade investments 0.1
------------
(125.5)
============
80
82
1996
------------
pound
sterling m
(E) Acquisitions And Disposals
Acquisitions (Note 23) (8.5)
Sale of discontinued operations (Note 2) 74.8
Additions to associated undertakings (7.0)
------------
59.3
============
(F) Management of Liquid Resources
1996
------------
pound
sterling m
Additions to current asset investments (4.4)
Increases in short term investments (1.8)
------------
(6.2)
============
(G) Financing
1996
------------
pound
sterling m
New loans 176.7
Repayment of loans (206.8)
------------
Cash outflow from decrease in debt and lease financing (30.1)
Issues of ordinary share capital 1.2
Capital input by minorities 1.8
------------
(27.1)
============
(H) Acquired and Discontinued OPERATIONS
In 1996, acquired and discontinued operations had no significant impact on any
of the cash flow categories, other than as disclosed in acquisitions and
disposals (Note 22(e)) above.
(23.) Acquisitions
On 12 July 1996 the Group acquired the trade, fixed assets and stock of the
Cummins Engine Company's piston ring business in the United States. The
consideration is contingent on the profits of the business during 1997 and
therefore has not yet been finally determined. The maximum consideration of
L6.5m has been provided in these accounts, this being the current best estimate
of the amount which will be payable. There was no difference between the book
value and fair value of the assets acquired. Accurate details of profits and
losses prior to acquisition are not available because the business was part of a
larger operating entity.
pound
ASSETS ACQUIRED sterling m
---------------- ------------
Fixed assets 5.8
Stocks 0.4
------------
6.2
Goodwill 0.3
------------
CASH CONSIDERATION 6.5
------------
Cash paid for acquisitions
Cash consideration 6.5
Consideration deferred (3.7)
Prior year deferred consideration paid (mainly Connoisseur) 5.7
------------
Cash outflow on acquisitions 8.5
============
81
83
(24.) Analysis of Movement in Net Debt
EXCHANGE MOVEMENT ON
-------------------------- AT 31
AT 1 JANUARY OPENING MOVEMENT IN DECEMBER
1996 CASH FLOW BALANCES YEAR 1996
------------ ------------ ------------ ------------ ------------
pound pound pound pound pound
sterling m sterling m sterling m sterling m sterling m
Cash at bank and in hand 95.4 23.8 (10.3) 1.5 110.4
Overdrafts (35.7) 7.0 5.2 (0.5) (24.0)
------------ ------------ ------------ ------------ ------------
59.7 30.8 (5.1) 1.0 86.4
------------ ------------ ------------ ------------ ------------
Debt due within one year (106.4) 24.0 30.0 0.7 (51.7)
Debt due after one year (273.9) 2.6 13.1 1.8 (256.4)
Finance leases (10.3) 3.5 1.9 (0.4) (5.3)
------------ ------------ ------------ ------------ ------------
(390.6) 30.1 45.0 2.1 (313.4)
------------ ------------ ------------ ------------ ------------
Short term deposits 19.7 1.8 (0.3) (0.1) 21.1
Current asset investments 1.2 4.4 -- -- 5.6
------------ ------------ ------------ ------------ ------------
20.9 6.2 (0.3) (0.1) 26.7
------------ ------------ ------------ ------------ ------------
Net borrowings (310.0) 67.1 39.6 3.0 (200.3)
============ ============ ============ ============ ============
(25.) Deferred Taxation
AT 31
DECEMBER
1996
------------
pound
sterling m
Asset recognised
Asbestos-related costs 27.4
Losses and other timing differences 3.0
------------
30.4
============
No provision has been made for tax which would become payable on the amount by
which assets have been revalued because there is no current intention to dispose
of these assets.
AT 31
DECEMBER
1996
------------
pound
sterling m
Unprovided assets/(liabilities)
Excess of book value over tax value of fixed assets (63.4)
Asbestos-related costs 52.0
Losses and other timing differences (17.7)
------------
(29.1)
===========
Provision for deferred taxation is only made to the extent that it is probable
that an actual liability or asset will crystallise. Advance corporation tax of
L56.5m is available for carry forward against future UK tax liabilities.
(26.) Related Party Transactions
The T&N Group is related to all its associated undertakings because it exerts
significant influence over them. During the year various transactions have
occurred between the T&N Group and its associates including:
- -- sales of goods and equipment to associated undertakings of pound sterling
12.8m;
- -- purchases of goods from associated undertakings of pound sterling 15.5m;
- -- royalties received from associated undertakings of pound sterling 1.4m;
- -- dividends received from associated undertakings of pound sterling 6.8m;
- -- investments in associated undertakings as set out in Note 12.
82
84
Sales between associated undertakings totalled pound sterling 16.0m.
Trading balances with associated undertakings at 31 December 1996 are set out in
Notes 14 and 16.
Entities which the T&N Group sold and acquired during the year, details of which
are set out in Notes 2 and 23, are deemed to be related parties because the T&N
Group exercised control over these whilst they were part of the T&N Group.
Transactions during the year which are not eliminated on consolidation totalled
L1.0m comprising mainly the provision of utilities to disposed businesses. All
these transactions were entered into on arms length terms.
(27.) Commitments and Contingent Liabilities
AT 31
DECEMBER
1996
------------
pound
sterling m
Future capital expenditure -- contracts placed 12.6
============
Operating leases -- payment commitments for 1997
On leases of land and buildings expiring
within one year 1.0
between two and five years 2.1
in more than five years 2.1
------------
5.2
============
On leases of plant and machinery expiring
within one year 1.4
between two and five years 7.0
in more than five years 0.1
------------
8.5
============
At 31 December 1996 the Company and its UK subsidiaries had contingent
liabilities of pound sterling 64.3m in connection with guarantees relating to
bank borrowings of certain overseas subsidiaries. The maximum potential
liability under those guarantees is pound sterling 121.4m. Contingent
liabilities also exist in respect of cross-guarantees given by the Company and
its UK subsidiaries to support some of the Group's UK bank borrowings.
(28.) Asbestos-related litigation*
In the United States of America, T&N plc and two of its US subsidiaries ("the
T&N Companies") are among many defendants named in numerous court actions
alleging personal injury resulting from exposure to asbestos or asbestos-
containing products. T&N plc is also subject to asbestos-disease litigation, to
a lesser extent, in the UK. Because of the slow onset of asbestos-related
diseases, the directors anticipate that similar claims will be made in the
future. It is not known how many such claims will be made nor the expenditure
which may arise therefrom.
In previous years, there was insufficient information and insurance protection
to enable an estimate of the outstanding cost of potential future
asbestos-disease claims to be made with reasonable accuracy. Therefore, in
accordance with Statement of Standard Accounting Practice No18, provision was
made only for those claims notified and in respect of which payment was
outstanding at each accounting date.
The directors have now been able, by payment of a premium of pound sterling 92m,
to arrange a pound sterling 500m layer of insurance cover, should the aggregate
amount of claims notified after 30 June 1996 where the exposure occurred prior
to 1 July 1996 (IBNR claims) exceed pound sterling 690m.
IBNR CLAIMS
This, together with recent claims experience and medical information, has
enabled the directors to determine an estimate of the cost of future claims with
reasonable accuracy. The directors have made provision of pound sterling 550
million for IBNR claims at 30 June 1996 (being a point between the high (pound
sterling 690m) and low (pound sterling 429m) estimates prepared by actuaries
using assumptions referred to below). For the purpose of these accounts this
provision is being made on a discounted basis, using a rate of 7%. The directors
intend to set aside this provision in a separate fund, and the
- --------------------------
*More recent information is contained in T&N's unaudited interim report for the
six months to 30 June 1997 which is reproduced on pages 85 to 90 of this
document.
83
85
provision of L323m allows a margin to enable this to be phased in accordance
with the assumptions over a period of approximately 36 months. Tax relief is
available on this provision when payments are made.
CLAIMS NOTIFIED AND OUTSTANDING AT 30 JUNE 1996
As regards claims notified and outstanding at 30 June 1996 in the UK, full
provision is made in respect of such claims.
As regards claims notified and outstanding at 30 June 1996 in the US, provision
continues to be made based on data provided by the Center for Claims Resolution
(CCR), whom T&N has appointed as its exclusive representative in relation to all
asbestos-related personal injury claims made against the T&N Companies in the
United States. In estimating the provision, the directors have had regard
principally to the industry in which the plaintiff claims exposure, the alleged
disease type, the State in which the action is being brought and the share which
will be applicable to the T&N Companies having regard to the agreed method of
operation of the CCR. Such shares may in certain circumstances be subject to
retroactive adjustment. Even where settlement has already been agreed in
principle with plaintiffs' lawyers in respect of a group of cases, the actual
cost of each claim to the T&N Companies may not be determined until it is
finally processed and paid sometime in the future.
CONTINGENT LIABILITY
Accordingly, although the directors believe that they have made appropriate
provision for claims, because of the factors described in this note, there are
contingencies in relation to the amount at which such claims will be finally
settled.
Given the substantial layer of insurance cover, one contingency in relation to
IBNR claims concerns claims exceeding the amount provided, but below the level
of insurance cover. This amounts to L140m gross, and L58m when discounted. The
directors also recognise the importance of setting up a separate fund in
accordance with the assumptions used in arriving at the discounted provision.
In arriving at the IBNR provision, assumptions have been made regarding the
total number of claims which it is anticipated may be received in the future,
the average cost of settlement (which is sensitive to the industry in which the
plaintiff claims exposure, the alleged disease type and the State in which the
action is being brought), the rate of receipt of claims and the timing of
settlement and the level of subrogation claims brought by insurance companies.
In addition it has been assumed that the terms of the Georgine Settlement will
not apply (even though the directors have received legal advice that this will
not necessarily be the case). If the Georgine Settlement continues in force for
some time, whether or not it is ultimately upheld by the Courts of the United
States, the present value of the potential liability for US IBNR claims should
reduce.
So far as relates to claims reported at 30 June 1996, T&N is primarily exposed
to differences between the assumptions referred to above and the actual claims
settlement experience as it emerges.
US PROPERTY DAMAGE LITIGATION
Following the successful jury verdict in the Chase Manhattan property damage
case in December 1995, judgement was entered in the Company's favour on all
counts during the year. Motions have been filed with the Court by The Chase
Manhattan Bank, seeking a new trial and appealing against the decision in the
Company's favour. The Company has received legal advice that such motions stand
no realistic prospect of success. Full provision has been made in respect of the
anticipated legal costs which may be incurred in relation to the Chase Manhattan
case, and for the other eight remaining property claims.
82
86
7. INTERIM RESULTS OF T&N
The following is the text of the interim report containing T&N's results for the
six months to 30 June 1997 which were announced on 18 August 1997.
The figures below do not comprise statutory accounts. The figures for the year
ended 31 December 1996 are extracted from the full Group accounts which have
been filed with the Registrar of Companies. The figures for the six months ended
30 June 1996 and 30 June 1997 are unaudited.
"CHAIRMAN'S STATEMENT
Profit before tax on an FRS3 basis rose to pound sterling 114.7m in the
six months to 30 June 1997 compared with pound sterling 58.1m in the first half
of the previous year. Exceptional profits contributed pound sterling 29.4m to
the improvement and there was no charge for asbestos-related costs (1996: pound
sterling 25m). On an underlying basis, profit before tax was virtually unchanged
from the previous year despite the adverse effects of exchange translation.
Operating margins rose by a full percentage point to 10.6%. Cash generation was
strong.
TRADING
Sales of continuing operations were pound sterling 908m, pound sterling
49m below the previous year after adverse exchange translation effects of pound
sterling 84m. At constant exchange rates and excluding acquisitions, which
contributed pound sterling 3m, sales grew by 4%. Operating profits on continuing
businesses reached pound sterling 95.8m, up pound sterling 4.2m after adverse
exchange translation effects of pound sterling 5.9m. Rationalisation costs
charged against operating profit totalled pound sterling 9.9m compared with
pound sterling 9.2m the previous year as the Group continued its productivity
improvement programmes. Margins rose from 9.6% to 10.6% with all Product Groups
showing an improvement.
Bearings, Sealing Products and Composites & Camshafts were particularly
strong while Pistons and Friction confirmed their recovery programmes were on
track. Metal Leve, acquired in June, has made an encouraging start. In general,
volumes in north America were strong; in Europe volumes were little changed.
Total sales, including discontinued activities, were pound sterling 932m (1996:
pound sterling 1,051m) and operating profit pound sterling 98.7m (1996: pound
sterling 100.2m).
The effect of exchange rate movements in the period was felt principally on the
translation of overseas earnings. Compared with the first six months of the
previous year, sterling strengthened by about 18% against the continental
currencies and 7% against the dollar, reducing sales and operating profits of
continuing businesses as mentioned above. Transaction effects were, however,
relatively minor in the period. The Group's policy of manufacturing in the same
geographical area as the customer confined the effect, in the main, to exports
from the UK to Continental Europe amounting to less than 10% of Group sales.
While some areas of activity experienced pressure on prices, in general the
strong market position and technology base of the Product Groups enabled volumes
to be maintained at satisfactory margins.
Profit before tax in the period benefited from two exceptional credits.
Profit from the disposal of non-core businesses, principally the Flexitallic
industrial sealing activity sold in April, totalled pound sterling 15.9m after
goodwill clawback of pound sterling 1.8m. The results also include pound
sterling 13.5m from the sale of options over 24.9% of the equity in
Kolbenschmidt AG received under the terms of a profit sharing arrangement with
Commerzbank. The Group has negotiated matching call and put options over the
remaining 24.9% of Kolbenschmidt equity with exercise dates up to December 1999.
If exercised at the end of this period these options would generate a profit,
net of holding costs, of approximately pound sterling 24m at current exchange
rates largely recouping the costs incurred to date. The Group welcomes the steps
being taken by Rheinmetall AG to merge their Pierburg subsidiary with
Kolbenschmidt. An additional profit of pound sterling 5.0m from the sale of the
Tenmat activity sold on 4 August has not been included in the half year accounts
though the business has been treated as a discontinued activity.
Asbestos-related costs arising in the period were charged to provisions set up
in the 1996 accounts.
Net interest charges fell in the period from pound sterling 15.2m to
pound sterling 13.4m partly because of favourable exchange rate effects but also
because of strong cash generation. Interest cover before exceptional credits was
7.4 times (1996: 6.6 times). Taxation accounted for pound sterling 38.4m, an
effective rate of 33%, compared with pound sterling 20.3m (35%) in the first
half of 1996. After minority interests of pound sterling 2.4m, profit
attributable to T&N shareholders rose by pound sterling 39.3m to pound sterling
73.9m. Earnings per share rose to 13.9p compared with 6.5p the previous year.
Excluding the effect of exceptional gains, earnings per share were 10.2p. The
special dividend in lieu of the 1996 final was paid in July. The Board has
decided to increase the interim dividend by 7% from 3.0p to 3.2p. This will be
paid on 14 November 1997 to shareholders on the register on 12 September 1997. A
Scrip Alternative will be offered.
The results include a pension credit arising under SSAP24 of pound
sterling 2.9m (1996: pound sterling 2.5m). The Group is currently discussing
with its advisers the impact of recent Budget changes on the pension credit but
at this stage does not expect the effect to be material this year.
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CASH
Cash generation continued to receive high priority in the period and
cash generated by operating activities increased from pound sterling 94.9m to
pound sterling 102.9m. Inventories at the end of the reporting period were pound
sterling 239.2m compared to pound sterling 292.8m twelve months earlier.
Adjusting for disposals and the effect of exchange rates, inventories on a like
for like basis fell by about 8% over the twelve months.
Asbestos-related payments in the period comprised pound sterling 92m
paid in January in respect of the insurance premium charged in the 1996
accounts, and pound sterling 34.3m of ongoing payments, down from pound sterling
40.8m the previous year. The cash outflow on taxation was also down, from pound
sterling 11.7m to pound sterling 8.5m. Capital expenditure totalled pound
sterling 41.9m compared with pound sterling 53.7m so that net cash flow
(excluding the insurance premium) before acquisitions, disposals and financing
improved from an outflow of (pound sterling 32.2m) to an inflow of pound
sterling 5.3m.
Acquisitions, principally Metal Leve acquired in June, totalled pound
sterling 33.0m. Disposals generated pound sterling 52.6m. Additional receipts
totalling pound sterling 17m due from the sale in 1996 of the Group's Zimbabwean
construction activity have been delayed owing to operational difficulties in the
mining operations. The Group is receiving interest on the delayed payments which
have been treated as a receivable. The proceeds of the disposals have been
transferred to the asbestos claims fund which is shown separately in the balance
sheet. With the disposal of Tenmat mentioned above, the Group currently has
around pound sterling 70m in the asbestos fund. The Group will be appointing
external fund managers to advise on the investment of the fund in the next few
months.
After favourable exchange effects of pound sterling 10.6m, bank
borrowings at the close of the period were pound sterling 307.6m compared with
pound sterling 312.7m a year earlier. With pound sterling 51.2m in the asbestos
claims fund, net debt was pound sterling 256.4m (June 1996: pound sterling
312.7m).
ASBESTOS
The measures announced last year, to take a significant provision in
respect of the estimated present value of possible future asbestos-related
disease claims against the Group, and to purchase a substantial (pound sterling
500m) layer of insurance as additional cover, protect the Company against the
decision of the US Supreme Court not to preserve the Georgine settlement. The
procedures established by the settlement, which sought to resolve claims through
an efficient administrative system rather than through the Courts, thus came to
an end on 21 July 1997. The Company, working with the other members of the
Center for Claims Resolution, will continue its efforts to achieve the essential
aim of the Georgine settlement.
Following the successful jury verdict in the Chase Manhattan property damage
case in December 1995, Chase lodged various motions with the Court seeking a new
trial. Such motions were defeated. Chase has now submitted an appeal against the
jury's verdict. The Company has received legal advice that the appeal stands no
realistic prospect of success.
Further progress has been made in reducing the number of other property damage
claims, and only four of such cases now remain pending. The Company's potential
liability in respect of such cases has been fully provided for. In the United
Kingdom, the claims processing and administration procedures continue to operate
well.
PROSPECTS
Continued strong cash generation and operating margins back to 10.6%, even after
charging substantial rationalisation costs, provide a sound basis for
improvement to the Group's performance in the future. The strength of sterling
is obviously an issue, but our strong market position, geographical spread and
investment in technology is limiting the overall effect on the Group. The
decision to increase the dividend reflects our confidence.
SIR COLIN HOPE
CHAIRMAN
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GROUP PROFIT AND LOSS ACCOUNT
SIX MONTHS SIX MONTHS YEAR ENDED
ENDED ENDED 31 DECEMBER
NOTE 30 JUNE 1997 30 JUNE 1996 1996
--------- ------------ ------------ -----------
pound pound pound pound
sterling sterling sterling sterling
m m m m
TURNOVER
Turnover including share of associated undertakings 977 1,098 2,038
Associated undertakings (45) (47) (82)
------------ ------------ ------------
Turnover excluding associated undertakings 1 932 1,051 1,956
------------ ------------ ------------
OPERATING PROFIT 1&2 98.7 100.2 178.5
Asbestos-related costs -- (25.0) (515.0)
Profit/(loss) on disposals 3 15.9 0.8 (1.6)
Kolbenschmidt option profit/(costs) 4 13.5 (2.7) (23.4)
------------ ------------ ------------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE INTEREST 128.1 73.3 (361.5)
Net interest payable (13.4) (15.2) (26.8)
------------ ------------ ------------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION 114.7 58.1 (388.3)
Taxation 5 (38.4) (20.3) (8.0)
------------ ------------ ------------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER TAXATION 76.3 37.8 (396.3)
Minority interests (2.4) (3.2) (4.5)
------------ ------------ ------------
Profit/(loss) attributable to shareholders 73.9 34.6 (400.8)
Dividends (33.0) (15.9) (16.0)
------------ ------------ ------------
Transfer to/(from) reserves 40.9 18.7 (416.8)
------------ ------------ ------------
Earnings per 40p share (net) 7 13.9p 6.5p (75.4p)
Dividends per 40p share 8 6.2p 3.0p 3.0p
============ ============ ============
GROUP BALANCE SHEET
SIX MONTHS SIX MONTHS YEAR ENDED
ENDED ENDED 31 DECEMBER
NOTE 30 JUNE 1997 30 JUNE 1996 1996
--------- ------------ ------------ ------------
pound pound pound pound
sterling sterling sterling sterling
m m m m
Tangible fixed assets and investments 726.3 775.1
756.7
------------ ------------ ------------
Stocks 239.2 292.8 247.6
Debtors 460.3 523.7 416.9
Creditors (404.0) (398.7) (484.4)
------------ ------------ ------------
Operating working capital 295.5 417.8 180.1
------------ ------------ ------------
OPERATING ASSETS 1,021.8 1,192.9 936.8
------------ ------------ ------------
Dividends and ACT payable (41.3) (39.8) (4.0)
Provisions for liabilities and charges 6 (554.7) (249.8) (589.5)
------------ ------------ ------------
ASSETS EMPLOYED 425.8 903.3 343.3
------------ ------------ ------------
Share capital 7 213.0 531.5 532.2
Reserves (70.8) 34.6 (413.9)
------------ ------------ ------------
Shareholders' funds 142.2 566.1 118.3
Minority interests 27.2 24.5 24.7
------------ ------------ ------------
EQUITY 169.4 590.6 143.0
------------ ------------ ------------
Other borrowings 307.6 312.7 200.3
Asbestos fund (51.2) -- --
------------ ------------ ------------
Net borrowings 256.4 312.7 200.3
------------ ------------ ------------
CAPITAL EMPLOYED 425.8 903.3 343.3
============ ============ ============
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GROUP NET DEBT MOVEMENT
SIX MONTHS SIX MONTHS YEAR ENDED
ENDED ENDED 31 DECEMBER
NOTE 30 JUNE 1997 30 JUNE 1996 1996
--------- ------------ ------------ ------------
pound pound pound
sterling sterling sterling
m m m
OPERATING PROFIT/(LOSS) 98.7 75.2 (336.5)
Depreciation 49.2 51.6 98.3
Operating working capital (45.0) (53.2) 21.2
Asbestos-related costs -- 25.0 515.0
Provisions etc. -- (3.7) (10.7)
------------ --------- ------------
CASH INFLOW FROM OPERATING ACTIVITIES 102.9 94.9 287.3
Asbestos-related payments -- claims and costs (34.3) (40.8) (64.8)
-- insurance premium (92.0) -- --
------------ --------- ------------
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (23.4) 54.1 222.5
Returns on investment and servicing of finance (11.7) (18.2) (31.4)
Taxation (8.5) (11.7) (28.9)
------------ --------- ------------
CASH (OUTFLOW)/INFLOW BEFORE INVESTING ACTIVITIES AND
FINANCING (43.6) 24.2 162.2
Capital expenditure (41.9) (53.7) (114.3)
Other (1.2) (2.7) (11.2)
------------ --------- ------------
NET CASH (OUTFLOW)/INFLOW BEFORE ACQUISITIONS, DISPOSALS AND
FINANCING (86.7) (32.2) 36.7
Acquisitions 3 (33.0) (9.6) (15.5)
Disposals 3 52.6 26.2 74.8
Equity dividends paid -- -- (31.9)
Share issues 0.4 0.9 3.0
------------ --------- ------------
(66.7) (14.7) 67.1
Currency translation 10.6 12.0 42.6
------------ --------- ------------
Net debt change (56.1) (2.7) 109.7
============ ========= ============
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
SIX MONTHS SIX MONTHS
ENDED ENDED
30 JUNE 1997 30 JUNE 1996
------------ ------------
pound pound
sterling sterling
m m
Profit attributable to shareholders 73.9 34.6
Other recognised gains and losses:
Currency translation differences on foreign currency net investments (7.6) (9.0)
Other 0.9 0.3
------------ ------------
(6.7) (8.7)
------------ ------------
Total recognised gains and losses relating to the period 67.2 25.9
============ ============
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
SIX MONTHS SIX MONTHS
ENDED ENDED
30 JUNE 1997 30 JUNE 1996
------------ ------------
pound pound
sterling sterling
m m
Profit attributable to shareholders 73.9 34.6
Dividends (33.0) (15.9)
------------ ------------
Transfer to reserves 40.9 18.7
Other recognised gains and losses (as above) (6.7) (8.7)
New share capital subscribed 0.2 0.5
Goodwill charged on disposal 1.8 7.7
Goodwill on acquisition (12.3) (0.3)
------------ ------------
Net change 23.9 17.9
Shareholders' funds at 31 December 1996/1995 118.3 548.2
------------ ------------
Shareholders' funds at 30 June 1997/1996 142.2 566.1
============ ============
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NOTES TO THE ACCOUNTS
TURNOVER OPERATING PROFIT
---------------------------------------- ----------------------------------------
SIX MONTHS SIX MONTHS YEAR ENDED SIX MONTHS SIX MONTHS YEAR ENDED
ENDED 30 ENDED 30 31 DECEMBER ENDED 30 ENDED 30 31 DECEMBER
JUNE 1997 JUNE 1996 1996 JUNE 1997 JUNE 1996 1996
------------ ------------ ------------ ------------ ------------ ------------
pound pound pound pound pound pound
sterling sterling sterling sterling sterling sterling
m m m m m m
1. PRODUCT GROUPINGS
Bearings 167 175 333 25.0 23.7 44.7
Sealing Products 101 115 216 10.7 10.3 16.2
Friction Products 159 170 320 11.3 11.3 16.5
Piston Products 287 301 574 24.5 23.1 41.4
Composites and Camshafts 194 196 381 24.3 23.2 45.6
------------ ------------ ------------ ------------ ------------ ---------
Continuing operations* 908 957 1,824 95.8 91.6 164.4
Discontinued operations 24 94 132 2.9 8.6 14.1
------------ ------------ ------------ ------------ ------------ ---------
Total 932 1,051 1,956 98.7 100.2 178.5
------------ ------------ ------------ ------------ ------------ ---------
*Including acquisitions 3 -- -- 0.4 -- --
GEOGRAPHICAL -- BY ORIGIN
UK 227 219 431 27.4 28.1 56.2
Mainland Europe 337 392 725 34.1 27.2 45.9
North America 283 281 537 31.4 30.9 54.1
South Africa 53 56 111 3.1 4.3 8.0
Other countries 8 9 20 (0.2) 1.1 0.2
------------ ------------ ------------ ------------ ------------ ---------
Continuing operations 908 957 1,824 95.8 91.6 164.4
Discontinued operations 24 94 132 2.9 8.6 14.1
------------ ------------ ------------ ------------ ------------ ---------
Total 932 1,051 1,956 98.7 100.2 178.5
------------ ------------ ------------ ------------ ------------ ---------
GEOGRAPHICAL -- BY DESTINATION
UK 148 145 281
Mainland Europe 375 425 785
North America 284 282 551
South Africa 44 48 92
Other countries 57 57 115
------------ ------------ ------------
Continuing operations 908 957 1,824
Discontinued operations 24 94 132
------------ ------------ ------------
Total 932 1,051 1,956
============ ============ ============
SIX MONTHS SIX MONTHS YEAR ENDED
ENDED 30 ENDED 30 31 DECEMBER
JUNE 1997 JUNE 1996 1996
------------ ------------ ------------
pound pound pound
sterling sterling sterling
m m m
2. ASSOCIATED UNDERTAKINGS
Share of turnover 45.0 47.0 82.0
------------ ------------ ------------
Share of profits before taxation 6.2 7.4 11.1
============ ============ ============
3. ACQUISITIONS AND DISCONTINUED OPERATIONS
On 16 June 1997 the Group acquired Metal Leve Inc, a manufacturer of
articulated pistons, based in Michigan, USA. On 27 February 1997 the Group
acquired Michigan Stamping Corporation, which manufactures heat shields and
is also based in Michigan, USA. The goodwill figures included in these
accounts in respect of acquisitions are preliminary and may be subject to
amendment. Disposals during the period comprised the Flexitallic Sealing
businesses with effect from 10 April 1997, the Ferodo Caernarfon business
with effect from 3 May 1997 and Kafue Fisheries on 26 June 1997. On 4
August 1997 the Tenmat businesses were sold. The profit on disposal is not
included in these accounts. The trading results of the Tenmat businesses
are included in discontinued operations.
4. OPTIONS OVER SHARES IN KOLBENSCHMIDT AG ('KS')
At 31 December 1996 the Company held options to acquire 6,727,260 shares
in KS, representing 24.99% of the issued share capital of KS. These
arrangements expire on 5 September 1997. The option price is DM 17 per
share and the consideration payable on exercise of the options would be DM
114.4m (pound sterling 37.6m). On 28 May 1997 the Company announced that it
had entered into option arrangements to sell 6,727,260 shares in KS at a
price of DM 30 per share. The revenue receivable on exercise of these
options would be DM 201.8m (pound sterling 66.4m). These
89
91
arrangements expire on 15 December 1999. In addition, arrangements have
been entered into to extend to 15 December 1999 the existing options to
acquire KS shares. Both these new option arrangements are conditional on
the proposed merger between KS and Pierburg AG, Rheinmetall AG's automotive
subsidiary, taking place. The costs of these new arrangements (pound
sterling 6.2m) have been included in investments. In December 1996 option
arrangements with Commerzbank AG over a further 6,727,260 shares in KS
expired. Commerzbank AG subsequently sold the shares subject to the
arrangements and, under the terms of the agreement, the Company received
part of the proceeds. This gain of (pound sterling 13.5m has been
recognised as a profit.
The exceptional credit/(charge) relates to continuing operations and
comprises:
SIX MONTHS SIX MONTHS YEAR ENDED
ENDED 30 ENDED 30 31 DECEMBER
JUNE 1997 JUNE 1996 1996
------------ ------------ ------------
pound sterling pound sterling pound sterling
m m m
Received from Commerzbank on sale of shares 13.5 -- --
Payable on lapse of options with Commerzbank -- -- (10.0)
Transfer of options to Metallbank -- -- (8.5)
Other holding costs -- (2.7) (4.9)
------------ ------------ ------------
13.5 (2.7) (23.4)
============ ============ ============
5. TAXATION (CHARGE)/CREDIT
SIX MONTHS SIX MONTHS YEAR ENDED
ENDED 30 ENDED 30 31 DECEMBER
JUNE 1997 JUNE 1996 1996
------------ ------------ ------------
pound sterling pound sterling pound sterling
UK (8.2) (5.1) 3.1
Overseas (26.8) (11.6) (4.1)
Associated undertakings (3.4) (3.6) (7.0)
------------ ------------ ------------
(38.4) (20.3) (8.0)
============ ============ ============
6. PROVISIONS FOR LIABILITIES AND CHARGES
Retirement benefits (137.1) (156.3) (142.1)
Asbestos-related (412.3) (81.2) (440.6)
Other (5.3) (12.3) (6.8)
------------ ------------ ------------
(554.7) (249.8) (589.5)
============ ============ ============
7. SHARE CAPITAL
SIX MONTHS ENDED 30 JUNE
--------------------------
1997
NUMBER 1997
------------ ------------
(m) pound sterling
m
At 1 January 1997 532.2 532.2
Capital reduction -- (319.4)
Shares issued 0.3 0.2
------------ ------------
At 30 June 1997 532.5 213.0
------------ ------------
Average number of shares in issue:
Six months ended 30 June 1997 532.3
Six months ended 30 June 1996 531.4
============
A capital reduction was approved by the Court on 29 January 1997 and took
effect on 30 January 1997. In accordance with the terms of the capital
reduction, the nominal value of authorised and issued shares was reduced
from pound sterling 1.00 to 40p. The reduction in share capital of pound
sterling 319.4m is transferred to other reserves and has no impact on
shareholders' funds.
8. DIVIDENDS
The 1997 dividends of 6.2p per share include an interim dividend of 3.2p per
share and a further 3.0p per share as a 'first interim' dividend in lieu of
a 1996 final dividend.
9. ACCOUNTING POLICIES
There has been no change in accounting policies in the six month period
ended 30 June 1997. The accounting policies are as disclosed in the accounts
for the year ended 31 December 1996."
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APPENDIX IV
ADDITIONAL INFORMATION
1. RESPONSIBILITY
(a) The directors of Federal-Mogul whose names are set out in paragraph 2(a)
below and the directors of the Offeror, whose names are set out in paragraph
2(b) below, accept responsibility for the information contained in this
document, other than the information contained in this document relating to
T&N, the directors of T&N and their immediate families and persons connected
with the directors of T&N. To the best of the knowledge and belief of such
directors (who have taken all reasonable care to ensure that such is the
case), the information contained in this document for which they accept
responsibility is in accordance with the facts and does not omit anything
likely to affect the import of such information.
(b) The directors of T&N, whose names are set out in paragraph 2(c) below,
accept responsibility for the information contained in this document
relating to T&N, the directors of T&N and their immediate families and
persons connected with the directors of T&N. To the best of the knowledge
and belief of the directors of T&N (who have taken all reasonable care to
ensure that such is the case), the information contained in this document
for which they accept responsibility is in accordance with the facts and
does not omit anything likely to affect the import of such information.
2. DIRECTORS AND THE OFFEROR
(A) DIRECTORS OF FEDERAL-MOGUL
The directors of Federal-Mogul are as follows:
NAME POSITION
- ---- -----------------------------------
Richard A. Snell Chairman, Chief Executive Officer
and President
John J. Fannon Director
Roderick M. Hills Director
Antonio Madero Director
Robert S. Miller Jr. Director
John C. Pope Director
H. Michael Sekyra Director
(B) DIRECTORS OF THE OFFEROR
The names of the directors of the Offeror are as follows:
NAME POSITION
- ---- -----------------------------------
Richard A. Snell Director
Thomas A. Ryan Director
Alan Johnson Director
(C) DIRECTORS OF T&N
The names of the directors of T&N and the positions they hold are as follows:
NAME POSITION
- ---- -----------------------------------
Sir Colin Hope Chairman
Ian F.R. Much Chief Executive
David A. Harding Finance Director
Robert G. Beeston Non-Executive Director
Roger H. Boissier Non-Executive Director
Sir Terence Harrison Non-Executive Director
Professor Frank R. Hartley Non-Executive Director
Paul S. Lewis Non-Executive Director
Alister C. McWilliam Executive Director
T. Allan Welsh Executive Director
Sir Geoffrey Whalen Non-Executive Director
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93
(D) INFORMATION ON THE OFFEROR
Federal-Mogul Global Growth Limited is a wholly owned indirect subsidiary of
Federal-Mogul and has its registered office at Malvern Drive, Ty-Glas Industrial
Estate, Llanishen, Cardiff, Wales CF4 5WW. It was incorporated in England and
Wales under the Companies Act 1985 as a private limited company on 23 October
1997. Federal-Mogul Global Growth Limited's authorised share capital is 1000
ordinary shares of L1 nominal value each of which 100 ordinary shares have been
issued and fully paid. Federal-Mogul Global Growth Limited is a holding and
investment company in the Federal-Mogul Group and has been specially formed to
make the Offer. Federal-Mogul Global Growth Limited has not traded since its
date of incorporation and no accounts of Federal-Mogul Global Growth Limited
have been prepared. The immediate holding company of Federal-Mogul Global Growth
Limited is F-M UK Holding Limited which is wholly-owned by Federal-Mogul. Two
investors have a stake in Federal-Mogul above 5%: Capital Group (11.9%) and
Janus Capital (11.9%).
3. SHAREHOLDINGS AND DEALINGS
For the purposes of this paragraph 3, "disclosure period" means the period
commencing on 26 September 1996 (being the date 12 months prior to the
commencement of the Offer period) and ending at the close of business on 11
November 1997 (being the latest practicable date prior to the posting of this
document).
(A) HOLDINGS
(i) At the close of business on 11 November 1997 (being the latest
practicable date prior to the posting of this document), the directors
of T&N were interested in the following T&N Ordinary Shares:
NUMBER OF
DIRECTOR T&N ORDINARY SHARES
--------------------------------------- ---------------------
Sir Colin Hope 107,774
Ian Much 34,952
David Harding 5,104
Alister McWilliam 2,375
Allan Welsh 19,445
Robert Beeston 10,000
Roger Boissier 2,595
Sir Terence Harrison 10,000
Professor Hartley 3,131
Paul Lewis 1,000
Sir Geoffrey Whalen 4,856
(ii) At the close of business on 11 November 1997 (being the last
practicable date prior to the posting of this document), the directors
of T&N had the following options over T&N Ordinary Shares:
EXERCISE
NORMAL EXERCISE NUMBER OF T&N PRICE
NAME SCHEME PERIOD ORDINARY SHARES PER SHARE
- ------------------- ------------------------------------ --------------------- --------------- -------------
Sir Colin Hope T&N UK Share Option Scheme and 1995 11.4.91-10.4.98 55,796 159.5p
Executive Share Option Scheme 18.4.92-17.4.99 55,796 184.6p
10.4.93-9.4.00 86,084 147.8p
11.4.94-10.4.01 107,606 171.9p
19.3.95-18.3.02 94,112 111.4p
12.4.97-11.4.04 50,833 226.2p
1.2.00-31.7.00 8,145 119.7p
Ian Much T&N UK Share Option Scheme and 1995 11.4.94-10.4.01 80,704 171.9p
Executive Share Option Scheme 19.3.95-18.3.02 78,427 111.4p
15.4.96-14.4.03 20,913 172.1p
12.4.97-11.4.04 25,416 226.2p
10.5.98-9.5.05 100,000 159.0p
2.9.00-1.9.07 150,000 157.5p
T&N UK Savings-Related Share Option 1.7.98-31.12.98 2,846 158.1p
Scheme 1.7.00-31.12.00 4,924 158.4p
1.7.00-31.12.00 5,077 135.9p
1.7.01-31.12.01 2,215 155.7p
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94
EXERCISE
NORMAL EXERCISE NUMBER OF T&N PRICE
NAME SCHEME PERIOD ORDINARY SHARES PER SHARE
- ------------------- ------------------------------------ --------------------- --------------- -------------
David Harding T&N 1995 Executive Share Option 10.5.98-9.5.05 100,000 159.0p
Scheme 6.9.99-5.9.06 50,000 137.0p
2.9.00-1.9.07 200,000 157.5p
Alister McWilliam T&N UK Share Option Scheme and 1995 11.4.91-10.4.98 16,739 159.5p
Executive Share Option Scheme 18.4.92-17.4.99 22,318 184.5p
10.4.93-9.4.00 21,521 147.7p
11.4.94-10.4.01 43,043 171.9p
19.3.95-18.3.02 29,279 111.4p
15.4.96-14.4.03 15,685 172.1p
12.4.97-11.4.04 25,416 226.2p
6.10.97-5.10.04 10,166 207.5p
10.5.98-9.5.05 50,000 159.0p
2.10.99-1.10.06 20,000 134.5p
2.9.00-1.9.07 90,000 157.5p
T&N Savings-Related Share Option 1.7.00-31.12.00
Scheme
7,174 135.9p
Allan Welsh T&N UK Share Option Scheme and 1995 11.4.94-10.4.01 43,043 171.9p
Executive Share Option Scheme 19.3.95-18.3.02 41,827 111.4p
15.4.96-14.4.03 15,685 172.1p
12.4.97-11.4.04 25,416 226.2p
10.5.98-9.5.05 50,000 159.0p
2.10.99-1.10.06 20,000 134.5p
2.9.00-1.9.07 125,000 157.5p
T&N Savings-Related Share Option 1.7.00-31.12.00 1,015 135.9p
Scheme 1.2.02-31.7.02 2,882 119.7p
1.2.03-31.7.03 8,192 151.6p
(iii) The following irrevocable undertakings to accept the Offer have been
given by the directors of T&N in respect of the following numbers of
relevant securities:
NAME NUMBER OF T&N ORDINARY SHARES
------------------------- -------------------------------
Sir Colin Hope 107,774
Ian Much 34,952
David Harding 5,104
Alister McWilliam 2,375
Allan Welsh 19,445
Robert Beeston 10,000
Roger Boissier 2,595
Sir Terence Harrison 10,000
Professor Hartley 3,131
Paul Lewis 1,000
Sir Geoffrey Whalen 4,856
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95
(B) DEALINGS
In addition to the grant of the options referred to in paragraph (a)(ii)
above, dealings for value in T&N Ordinary Shares by the directors of T&N and
their immediate families and related trusts during the disclosure period were
as follows:
NUMBER OF T&N
NAME DATE TRANSACTION ORDINARY SHARES PRICE PER SHARE
- --------------------- ------------------- ----------------------------------- --------------- ---------------
Sir Colin Hope To be issued on 14 Scrip issue in respect of second
November 1997 interim dividend 2,212 152.7p
Ian Much 11 July 1997 Scrip issue in respect of first
interim dividend 68 136.3p
To be issued on 14 Scrip issue in respect of second
November 1997 interim dividend 716 152.7p
David Harding To be issued on 14 Scrip issue in respect of second
November 1997 interim dividend 104 152.7p
Alister McWilliam To be issued on 14 Scrip issue in respect of second
November 1997 interim dividend 49 152.7p
Allan Welsh 23 December 1996 Exercise and purchase 2,371 158.1p
31 December 1996 Sale 2,371 172.0p
11 July 1997 Scrip issue in respect of first
interim dividend 130 136.3p
25 September 1997 Exercise and purchase 13,274 101.7p
To be issued on 14 Scrip issue in respect of second
November 1997 interim dividend 127 152.7p
Robert Beeston 6 March 1997 Purchase 10,000 157.5p
Roger Boissier 11 July 1997 Scrip issue in respect of first
interim dividend 54 136.3p
To be issued on 14 Scrip issue in respect of second
November 1997 interim dividend 53 152.7p
Sir Terence Harrison 4 October 1996 Purchase 5,000 134.0p
3 June 1997 Purchase 5,000 124.0p
Professor Hartley 11 July 1997 Scrip issue in respect of first
interim dividend 66 136.3p
To be issued on 14 Scrip issue in respect of second
November 1997 interim dividend 64 152.7p
Paul Lewis 28 November 1996 Purchase 1,000 184.5p
Sir Geoffrey Whalen 11 July 1997 Scrip issue in respect of first
interim dividend 102 136.3p
To be issued on 14 Scrip issue in respect of second
November 1997 interim dividend 100 152.7p
(C) ARRANGEMENTS
Hoare Govett Corporate Finance Limited offers a bridge facility to holders
of options under the T&N UK Share Option Scheme and the T&N 1995 Executive
Share Option Scheme to facilitate the exercise of options and, if required,
the sale of shares arising after exercise of options in order to fund the
subscription price, interest charge and dealing costs.
(D) GENERAL
Save as disclosed in paragraphs (a), (b) and (c) above:
(i) none of Federal-Mogul nor the Offeror nor any member of the
Federal-Mogul Group owns or controls any relevant securities nor has any
such person dealt for value therein during the disclosure period;
(ii) none of the directors of Federal-Mogul nor the directors of the Offeror
nor any member of their immediate families is interested (as described
in Parts VI and X of the Companies Act 1985), directly or indirectly,
in relevant securities nor has any such person dealt for value therein
during the disclosure period;
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(iii) no person acting in concert with Federal-Mogul (excluding exempt market
makers and exempt fund managers) owns or controls any relevant
securities nor has any such person dealt for value therein during the
disclosure period;
(iv) neither Federal-Mogul nor any person acting in concert with
Federal-Mogul has any arrangement of the kind referred to in paragraph
3(e) below with any of the directors, recent directors, shareholders or
recent shareholders of T&N having any connection with or dependence
upon the Offer;
(v) T&N does not own or control and no director of T&N is interested (as
described in parts VI and X of the Companies Act 1985), directly or
indirectly, in any shares in Federal-Mogul or the Offeror nor has any
such person dealt for value therein during the disclosure period;
(vi) no director of T&N is interested (as described in Parts VI and X of the
Companies Act 1985), directly or indirectly, in relevant securities nor
has any such director or any member of his immediate family or any
related trust or any company under its control dealt for value therein
during the disclosure period;
(vii) no subsidiary of T&N nor any pension fund of T&N or any subsidiary of
T&N nor any bank, financial or other professional adviser (including
stockbrokers) to T&N nor any person controlling, controlled by, or
under the same control as, any such bank, financial or other
professional adviser (other than exempt market-makers) owns or controls
any relevant securities nor has any such person dealt for value therein
during the period commencing on 26 September 1997 (the date of
commencement of the Offer period) and ending on 11 November 1997 (the
latest practicable date prior to the posting of this document); and
(viii) neither T&N nor any person who is an associate of T&N has any
arrangement of the kind referred to in paragraph 3(e) below relating to
relevant securities.
(E) DEFINITIONS
For the purposes of this paragraph 3:
(i) "arrangement" includes indemnity or option arrangements, and any
agreement or understanding, formal or informal, of whatever nature
relating to relevant securities which may be an inducement to deal or
refrain from dealing;
(ii) "relevant securities" means T&N Ordinary Shares and securities
convertible into, rights to subscribe for, options (including traded
options) in respect of, and derivatives referenced to, any of the
foregoing;
(iii) an "associate" of T&N means any of:
(aa) its subsidiaries, its associated companies and companies of which
any such subsidiaries or associated companies are associated
companies (where ownership or control of 20 per cent. or more of the
equity share capital is regarded as the test of associated company
status);
(bb) the banks, financial and other professional advisers (including
stockbrokers) to T&N or any company referred to in (aa) above,
including persons controlling, controlled by or under the same
control as such banks, financial or other professional advisers;
(cc) the directors of T&N (together with their close relatives and
related trusts) or of any company referred to in (aa) above;
(dd) the pension funds of T&N or of any company referred to in (aa)
above; and
(iv) "control" means a holding, or aggregate holdings, of shares carrying 30
per cent. or more of all the voting rights attributable to the share
capital of a company which are currently exercisable at a general
meeting, irrespective of whether the holding or holdings give de facto
control, and references to a "bank" do not apply to a bank whose sole
relationship with T&N is the provision of normal commercial banking
services.
4. MARKET QUOTATIONS
The following table shows the middle-market quotations for T&N Ordinary Shares,
as derived from the London Stock Exchange Daily Official List on the following
dates, unless otherwise indicated:
(i) the first dealing day of each of the 6 months immediately prior to the
date of this document;
(ii) 25 September 1997, being the last dealing day prior to the announcement
that T&N had received an approach from Federal-Mogul; and
(iii) 11 November 1997, being the latest practicable date prior to the
posting of this document.
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DATE T&N ORDINARY SHARE PRICE (P)
- ---------------------- ----------------------------
2 June 1997 123p
1 July 1997 144p
1 August 1997 142p
1 September 1997 157 1/2p
25 September 1997 182p
1 October 1997 246 1/2p
3 November 1997 251p
11 November 1997 250p
5. MATERIAL CONTRACTS
(1) FEDERAL-MOGUL
The following contracts have been entered into by members of the Federal-Mogul
Group, otherwise than in the ordinary course of business, since 26 September
1995 (being the date two years before the Offer period began) and are or may be
material:
(a) On 15 October 1997 a Senior Credit Agreement was entered into by
Federal-Mogul and Chase Manhattan Bank as administrative agent and lender
pursuant to which Federal-Mogul may borrow: (i) up to $2.35 billion in term
loans (the "Term Loans") to be used to finance the acquisition of T&N, pay
the fees and expenses in connection therewith and refinance existing
indebtedness of T&N, and (ii) up to $400 million outstanding at a given time
in revolving credit loans (the "Revolving Credit Loans") to be used to
refinance Federal-Mogul's existing revolving credit agreement, to pay fees
and expenses incurred under this Agreement and for working capital and other
general corporate purposes. The Term Loans are divided into three tranches
repayable over certain periods up to 31 December 2005. Revolving Credit
Loans are available for six years commencing on the first date upon which
payment for T&N shares must be made (the "Closing Date"). Federal-Mogul's
obligations under this Agreement are secured by a lien on certain inventory
and accounts receivable of Federal-Mogul and certain subsidiaries. In
addition, Federal-Mogul and certain subsidiaries will guarantee the Term
Loans and Revolving Credit Loans and will pledge the capital stock of
certain of their subsidiaries and certain intercompany loans.
(b) On 15 October 1997 a Senior Subordinated Credit Agreement was entered into
by Federal-Mogul and Chase Manhattan Bank as administrative agent and lender
pursuant to which Federal-Mogul may borrow $500 million (the "Loans") to
finance the acquisition of T&N and pay the fees and expenses in connection
therewith. The Loans will be subordinated to the loans under the Senior
Credit Agreement and other senior indebtedness of Federal-Mogul and will
mature on the first anniversary of the Closing Date unless unpaid at this
date, in which case the loans will roll over into term loans maturing ten
years after the Closing Date. The Loans will have the benefit of guarantees,
on a subordinated basis, by the guarantors of the loans under the Senior
Credit Agreement.
(c) On 15 October 1997, Federal-Mogul purchased from Chase Manhattan Bank a
foreign currency option with a notional amount of $2.5 billion to eliminate
downside risks associated with fluctuation in the pounds sterling/US dollar
exchange rate through to its expiration date of 15 January 1998. The option
was purchased for $28.1 million.
(2) T&N
The following contracts have been entered into by members of the T&N Group,
otherwise than in the ordinary course of business, since 26 September 1995
(being the date two years before the Offer period began) and are or may be
material:
(a) On 4 August 1997 T&N, Tenmat Limited, Tenmat Midlands Limited (together the
"UK Vendors"), T&N Export Services Limited, T&N Technology Limited, Tenmat
GmbH, Tenmat SARL, T&N Industries, Inc, True Fortune Limited (the
"Purchaser"), Modular Stock Limited (the "Purchaser's Guarantor"), Isomoules
Sarl and T&N Holdings Vermogensverwaltung Burschied GmbH ("Burschied GmbH")
entered into an asset sale agreement relating to the sale by T&N of the
business and assets of its Tenmat division. Under the terms of the agreement
the UK Vendors (as defined in the agreement) sold with full title guarantee
to the Purchaser certain assets and their UK business as a going concern,
T&N Export Services Limited and the UK Vendors sold with full title
guarantee to the Purchaser various debts, T&N Technology Limited and the
Vendors sold with full title guarantee to the Purchaser certain intellectual
property rights and the UK Vendors sold with full title guarantee to the
Purchaser the UK properties, as such terms are defined in the Agreement. The
consideration payable for the sale and purchase of the assets and the UK
business was pound sterling 14,490,220 in cash, subject to adjustment
under the terms of the agreement.
In addition, the Purchaser's Guarantor procured that its wholly owned
subsidiary Tenmat Holdings, Inc. acquired the entire issued share capital of
Tenmat Inc, that its subsidiary Burshied GmbH acquired the German Business
and that its subsidiary Isomoules Sarl acquired the French Business, where
"German Business" and "French
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Business" are defined in the agreement. The consideration payable in cash
under these related agreements was, subject to adjustment, under the US
Agreement pound sterling 1,808,588, under the French Agreement
Ffr10,890,277 and under the German Agreement DM3,677,510.
(b) By a letter agreement dated 16 June 1997 between Metallbank GmbH and T&N,
the bank granted to T&N a call option in respect of 6,727,260 shares in
Kolbenschmidt AG ('KS') on the terms set out in the letter. T&N has the
right to exercise the call option until 15 December 1999 at a price of DM 17
net per KS share. The total premium amount paid in respect of this option
was DM 15,472,698. A letter dated 18 July 1997 between the same parties
clarified the terms of the earlier agreement. By a letter agreement dated 12
May 1997 between the same parties, the bank granted to T&N a put option in
respect of 6,727,260 shares in KS on the terms set out in the letter. T&N
has the right to exercise the put option on 15 December 1999 at a price of
DM 30 net per KS share. The total amount paid to the bank in respect of this
option was DM 1,345,452.
(c) On 10 April 1997 T&N, T&N Investments Limited, T&N Investments Inc.,
Flexitallic Limited, Flexitallic Sealing Materials Limited, T&N Export
Services Limited, Flexitallic, Inc., Goetze Vermogensverwaltungs GmbH,
Flexitallic Canada Limited, Ferodo A.S., Dan Loc Corporation (the
"Purchaser"), Dan Loc Holdings Inc., Dan Loc Limited, Delta 72
Unternehmensverwaltungs GmbH, Frederique s.r.o., Dan Loc (Canada) Limited,
Dan Loc Investments Inc., and Dan Loc Transitional, L.P. entered into an
agreement under which T&N and the Selling Subsidiaries (as defined) agreed
to sell to the Purchaser and the Purchasing Subsidiaries (as defined) as a
going concern the business of manufacture and/or selling of spiral wound
gaskets, ring type joints, asbestos and non asbestos sheet ceiling
materials, valve packing and related products. The Purchaser and the
Purchasing Subsidiaries agreed to pay to T&N and the Selling Subsidiaries
the aggregate amount of $70 million, subject to adjustment. The Purchaser
also assumed certain liabilities.
(d) On 10 April 1997 the same parties as those referred to in (c) above (with
the exception of T&N Investments Limited, T&N Investments Inc., T&N Export
Services Limited, Dan Loc Holdings Inc. and Dan Loc Investments Inc.)
entered into a deed of special indemnity. Under the deed, T&N and the
Selling Subsidiaries (as defined) agreed to indemnify the Purchaser and the
Purchasing Subsidiaries in respect of certain environmental and
asbestos-related matters. The indemnity is for a period of 27 years from
closing and is unlimited as to amounts payable.
(e) Under a stock purchase agreement dated 19 March, 1997 between Metal Leve
S.A. Industria E Comercio (the "Parent"), Metal Leve International Limited
(the "Seller") and T&N Industries Inc. (the "Buyer"), the Seller agreed to
sell to the Buyer all of the issued and outstanding shares of common stock,
par value $1 per share, of Metal Leve Inc. (a Michigan Corporation), subject
to the terms of the agreement. Immediately prior to closing, the Parent and
the Seller contributed the Contributed Assets (as defined) to Metal Leve
Inc. The consideration payable by the Purchaser was $46 million, subject to
adjustment in accordance with the terms of the agreement. The business of
the Company (prior to closing) was the research and design with respect to,
and the development, manufacture, marketing, sale and distribution of other
pistons manufactured by Metal Leve Inc. in the US, articulated pistons and
large bore composite pistons by the Parent and its subsidiaries and other
diesel pistons sold by Metal Leve Inc. in the US.
(f) On 30 December 1996 T&N entered into an asbestos liability policy with
Curzon Insurance Limited of Guernsey (the "Insurer"). The period of
insurance commenced on 1 July 1996 and is unlimited in time. The premium
payable was pound sterling 92,046,000. Under the terms of the policy, the
Insurer indemnifies T&N for the ultimate net loss suffered by it in excess
of a retained limit of pound sterling 690 million, in connection with
asbestos claims made after 1 July 1996 anywhere in the world. The policy is
subject to an overall limit in respect of all claims of pound sterling 500
million. T&N may (with the approval of the Insurer) insure all or part of
the retained limit. Any ultimate net losses suffered by any T&N subsidiary
are conclusively presumed to have been suffered by T&N, to the extent of
T&N's shareholding in such subsidiary as at 1 July 1996.
(g) By a reinsurance agreement dated 30 December 1996 the Insurer referred to in
(f) above reinsured the ultimate net loss in excess of the retained limit
with Centre Reinsurance International Company (of Ireland), European
International Reinsurance Company Limited (of Barbados) and Muencheuer
Rueckversicherungs-Gesellschaft (of Germany). Each re-insurer is severally
liable for 33 1/3% of any ultimate net loss, up to a maximum of
pound sterling 166,666,666.66 each.
(h) On 16 December 1996 Glacier Vandervell Inc. (a member of the T&N Group)
("Glacier") and Daido Metal America Corporation ("Daido") (together the
"Members") entered into an agreement to form Glacier Daido America, L.L.C.
(the "Company"), for the purpose of manufacture in North America of
automotive bearing products for sale in north, central and south America and
export to other countries. The agreement continues until 31 December 2050,
unless earlier dissolved. The percentage interests of Glacier and Daido in
the Company are 70% and 30% respectively. As initial capital contributions,
Glacier contributed the net assets and liabilities of its Bellefontaine,
Ohio bearings manufacturing facility (worth $30 million) and Daido
contributed $9 million.
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Additional capital contributions may be required of the Members in certain
circumstances. Operational funds of up to $5 million may be advanced by the
Members during the first 5 years of the term.
(i) Under an asset transfer agreement dated 16 December 1996 between Glacier
Vandervell Inc. (the "Transferor") and Glacier Daido America, L.L.C., of
Delaware (the "Transferee"), the Transferor agreed to transfer to the
Transferee substantially all of the operating assets and liabilities of the
Transferor used in its Bellefontaine, Ohio bearing plant for the manufacture
of thin wall fluid film automotive bearings and by-metal strip material for
use in the manufacture of bearings (the "Business"). In consideration for
the Transferred Assets (as defined in the agreement) the Transferee issued
to the Transferor a 70% ownership interest in the Transferee. As additional
consideration for the sale of the Transferred Assets to the Transferee, the
Transferee assumed and agreed to perform and indemnify the Transferor
against the Assumed Liabilities (defined in the agreement). As further
consideration, the Transferee agreed to make a one time distribution to the
Transferor on 18 December 1996 of US$9 million in accordance with the terms
of the agreement. The aggregate consideration for the Transferred Assets was
US$30 million.
(j) By an agreement dated 19 July 1996 between T&N, AE Turbine Components
Limited (together the "Vendors"), T&N Export Services Limited, Precision
Castparts Corp. and AETC Limited (the "Purchaser"), the Vendors agreed to
sell to the Purchaser the business of the manufacture, machining and repair
of hot gas path components for gas turbines as a going concern together with
certain specific assets. In addition, T&N Export Services Limited agreed to
sell to the Purchaser certain specified debts. The consideration payable to
the Vendors was an initial payment of pound sterling 41 million, subject
to adjustment under the terms of the agreement.
(k) On 7 March 1996 T&N International Limited ("TNI") and T&N (the "Sellers")
entered into an agreement to sell to Africa Resources Limited (the
"Purchaser"), the entire issued share capitals of SMM Holdings Limited
(registered in England), THZ Holdings Limited (registered in England), TAP
Building Products Limited (registered in Zambia) and African Associated
Mines (Pvt) Limited (registered in Zimbabwe). The consideration payable for
the acquisition is US$60 million, payable to T&N in monthly instalments of
US$5 million payable on the last day of each month, with interest charged on
any later payment.
(l) In connection with the agreement referred to at (k) above, by a memorandum
of deposit and charge dated 15 March 1996 between the Purchaser, Africa
Construction Limited, the companies listed in the memorandum and T&N, the
Purchaser and Africa Construction Limited agreed to secure certain of their
obligations.
(m) By an agreement for the sale and purchase of the business and assets of the
division known as "Hydra-Tight" dated 23 October 1995 between T&N,
Hydra-Tight Limited, Bolting Technology Limited, Flexitallic Engineering
Limited, Pilgrim Engineering Developments Limited, Pilgrim Moorside Limited,
HTD Limited, and Inhoco 420 Limited (the "Purchaser"), T&N agreed to sell or
procure the sale of, and each of the Subsidiaries (as defined) agreed to
sell to the Purchaser as a going concern the assets (including intellectual
property) and undertaking of the its business of the design, manufacture,
marketing and sale of hydraulic and mechanical products and the rental, hire
or leasing of such products.
The consideration payable (subject to adjustment under the terms of the
agreement) to the Vendor for all the assets was the sum of pound sterling
6,998,000 in cash, the allotment and issue (at an aggregate sum of pound
sterling 2,250,000) of the Consideration Securities (as defined) by the
Purchaser to T&N or as T&N may direct. The Purchaser also agreed to make
available to T&N an interest-free loan of pound sterling 2,764,000 and to
pay further consideration of up to pound sterling 1,500,000, in each case
on the terms set out in the agreement.
(n) On 24 September 1995 T&N, T&N International Limited, T&N Industries Inc.,
T&N De Mexico S.A. De C.V. and Questreign Limited ("Questreign") entered
into an agreement under which Questreign agreed to purchase, or to procure
that a member of Questreign's Group purchased, from T&N or a member of the
T&N Group the UK Business, the Mexican Shares and the Chem Shares, each as
defined in the agreement. The consideration was paid in cash as follows. In
respect of the UK business the sum of pound sterling 29,787,478 plus pound
sterling 1,000,000 subject to adjustment, in respect of the Chem Shares the
sum of pound sterling 825,152 and in respect of the Mexican Shares, the sum
of pound sterling 1,804,000. The terms of the agreement were altered by a
supplemental agreement entered into between the same parties on 5 October
1995.
6. SERVICE CONTRACTS OF THE DIRECTORS OF T&N
The following directors of T&N have entered into service contracts having more
than 12 months to run with T&N, short particulars of which are set out below:
(a) Sir Colin Hope has a service contract with T&N which continues until
terminated as follows:
(i) prior to 1 June 1999 by not less than 12 months' written notice by T&N;
(ii) thereafter by notice expiring on 31 May 2000 by T&N;
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(iii) by not less than 12 months' written notice expiring on or before 31 May
2000 by Sir Colin Hope; or
(iv) automatically on 31 May 2000.
(b) Ian Much, David Harding, Alister McWilliam and Allan Welsh have service
contracts with T&N which continue until terminated as follows:
(i) by not less than two years' written notice by T&N;
(ii) by not less than six month's written notice at any time by the relevant
director; or
(iii) automatically on the last day of the month in which the relevant
director's sixty-second birthday occurs.
Under the terms of their service contracts, the T&N executive directors are
entitled to receive inter alia, a basic salary and an annual bonus. For the
year to 31 December 1997 the basic salaries are as follows: Sir Colin Hope:
pound sterling 310,000; Ian Much: pound sterling 300,000; David Harding: pound
sterling 206,000; Alister McWilliam: pound sterling 160,000; and Allan Welsh:
pound sterling 185,000. For the year to 31 December 1997 the T&N executive
directors (other than Sir Colin Hope, who has waived his bonus entitlement)
have a bonus opportunity equivalent to up to 40% of their annual salaries as at
31 December 1997 if certain objective criteria are met. These objective
criteria vary according to the position of the director concerned and are based
upon a basket of formulae comprising group and product group targets, including
a group achievement of earnings per share of 17.2p per share.
(c) Robert Beeston, Sir Terence Harrison and Paul Lewis have letters of
appointment with T&N which continue until terminated by not less than 12
months' written notice at any time, or in any event, in the case of Robert
Beeston, on 31 December 2000 and in the cases of Sir Terence Harrison and
Paul Lewis on 31 December 1998. Under the terms of these letters of
appointment Roger Beeston and Sir Terence Harrison are entitled to receive
an annual fee of pound sterling 23,500 and Paul Lewis is entitled to
receive an annual fee of pound sterling 26,500.
It has been agreed that, conditional on the Offer becoming wholly unconditional:
(i) Sir Colin Hope and Ian Much will resign as directors and employees of T&N
receiving pound sterling 336,574 and pound sterling 900,500 respectively
as compensation.
(ii) David Harding, Allan Welsh and Alister McWilliam may, by 30 days' notice
expiring not earlier than six months (or, in the case of David Harding,
sixty days) after the Offer becomes wholly unconditional, terminate their
employment with T&N. If they do so, or T&N terminates their employment
within one year of the Offer becoming wholly unconditional, they will be
entitled to receive pound sterling 620,700, pound sterling 549,900 and
pound sterling 478,900 respectively as compensation.
In addition T&N has agreed to make payment in respect of David Harding's
contractual pension entitlement (less appropriate deductions for tax) to
retirement benefits in excess of those which would be funded by contributions
within the approved limit for that part of an employee's pension which can be
funded through an approved pension scheme under the Finance Act 1989. Under his
service agreement, T&N had agreed that David Harding's pension shall, subject to
certain reservations, be as if the limitation did not apply and T&N has now
varied that agreement such that a cash contribution will be made to fund that
entitlement.
Save as disclosed above, there are no service contracts between any director or
proposed director of T&N with T&N or any of its subsidiaries having more than 12
months to run and no such contract has been entered into or amended within the
six months preceding the date of this document.
7. BASES OF CALCULATIONS AND SOURCES OF INFORMATION
In this document, unless otherwise stated, or the context otherwise requires,
the following bases and sources have been used:
(a) the prices of T&N Ordinary Shares as at a particular date are the closing
middle-market quotations for those shares as derived from the London Stock
Exchange Daily Official List as at that date;
(b) references to the value which the Offer places on the T&N Ordinary Share
Capital have been calculated using the Offer value of 260 pence per T&N
Ordinary Share and T&N's fully diluted ordinary share capital, meaning the
number of issued T&N Ordinary Shares as at 13 November 1997 and assuming the
exercise of all outstanding options under the T&N Share Option Schemes and
the issue on 14 November 1997 of 9,711,876 T&N Ordinary Shares pursuant to
the scrip alternative to the 1997 second interim dividend;
(c) the premia of the Offer over T&N's average share price in the one month and
three months prior to 25 September 1997 have been calculated using the Offer
value of 260 pence per T&N Ordinary Share and the arithmetic mean of the
closing middle-market quotations for T&N Ordinary Shares as derived from the
London Stock Exchange Daily Official List for the one month of 157.5 pence
and for the three months of 149.75 pence respectively;
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(d) the figures in paragraphs 3 and 4 of the letter from Morgan Stanley for
consolidated net income before exceptional items, for Federal-Mogul and T&N
respectively, have been calculated on the basis of certain assumptions;
(e) the statements in paragraph 5 of the letter from Morgan Stanley as to the
combined revenues, employees and geographic profile of Federal-Mogul and T&N
for 1996 are derived from the published annual report and audited annual
financial statements for Federal-Mogul Group for the year ended 31 December
1996 and the published consolidated annual report and accounts for T&N for
the year ended 31 December 1996. No account has been taken of differences
between UK GAAP and US GAAP. In addition, in the statements in paragraph 5
as to the combined revenues, employees, geographic profile, customers and
financial benefits, no account has been taken of any divestitures which
might be required by anti-trust authorities;
(f) the statements in paragraph 5 of the letter from Morgan Stanley as to the
effect of the acquisition on Federal-Mogul's earnings per share assume that
Federal-Mogul has implemented an appropriate refinancing;
(g) unless stated otherwise, US dollars have been converted into pounds sterling
and vice versa at the rate of 1.6 US dollars to 1.0 pound sterling. The US
dollar to pounds sterling exchange rate as at 10 November 1997 was 1.6871 as
published in the Financial Times on 11 November 1997, the latest practicable
date prior to the posting of this document; and
(h) the current equity market capitalisation of Federal-Mogul of US$1,781
million has been calculated using the last reported sale price of
Federal-Mogul's common stock on the New York Stock Exchange as at 10
November 1997 and the number of issued common stock as at 10 November 1997.
8. GENERAL
(a) (i) Morgan Stanley is satisfied that resources are available to the Offeror
sufficient to satisfy full acceptance of the Offer.
(ii) Federal-Mogul estimates that the total amount of funds necessary to
purchase all the T&N Ordinary Shares pursuant to the Offer will be
approximately pound sterling 1,500 million. Subject to the proposed
refinancing referred to in paragraph 5 of the letter from Morgan
Stanley on page 12, the funds needed to satisfy this consideration
will principally come from the proceeds of borrowings under the Senior
Credit Agreement and the Senior Subordinated Credit Agreement referred
to in paragraphs 5(1)(a) and (b) above respectively (the "Credit
Agreements").
To the extent that the Offeror requires funds to pay the consideration
under the Offer such funds will be made available by a combination of
capital contributions to the Offeror and its intermediate holding
companies and intercompany loans directly or indirectly to the Offeror
from its direct and indirect holding companies.
Payment of interest and principal on the facilities provided under the
Credit Agreements will be funded partly out of receipts by companies
within the Federal-Mogul Group from their investment in T&N and partly
from sources within the Federal-Mogul Group. Subject to compliance, where
necessary, with the procedures set out in sections 155 to 158 of the
Companies Act, it is intended that certain members of the T&N Group will
enter into various agreements to provide security to the lenders under
the Credit Agreements.
(b) Save as disclosed in this document, no agreement, arrangement or
understanding (including any compensation arrangement) exists between the
Offeror, Federal-Mogul or any person acting in concert with it for the
purpose of the Offer and any of the directors, recent directors,
shareholders or recent shareholders of T&N having any connection with or
dependence on, the Offer.
(c) So far as the directors of Federal-Mogul are aware and except as disclosed
in paragraph 6 above, no proposal exists in connection with the Offer that
any payment or other benefit be made or given to any director of T&N as
compensation for loss of office or as consideration for or in connection
with his retirement from office.
(d) Save as disclosed in this document, there is no agreement, arrangement or
understanding whereby the beneficial ownership of any of the T&N Ordinary
Shares to be acquired by the Offeror pursuant to the Offer will be
transferred to any other person, save that the Offeror reserves the right to
transfer any such shares to any member of the Federal-Mogul Group.
(e) Rothschilds, which is regulated by The Securities and Futures Authority in
the UK, has given and not withdrawn its written consent to the issue of this
document with the inclusion of its name in the form and context in which it
appears.
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